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THE  LAW,  RULES  AND  REGULATIONS 


GOVERNING 


Acceptances 


Rediscounts 


Open  Market 
Transactions 


OF 


FEDERAL  RESERVE  BANKS 

In  Force 
July  9.  1917 


0  SERVICE   DEPARTMENT 

National  Bank  of  Commerce  in  New  York 

JULY.  1917 


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Fore\^ord 

This  pamphlet  is  presented  as  a  brief  review  and  sum- 
mary of  the  laws,  rules,  and  regulations  covering  "Ac- 
ceptances, Rediscounts,  and  Open  Market  Transactions 
of  Federal  Reserve  Banks,"  as  they  are  in  force  today. 

In  1864  The  National  Bank  Act,  in  providing  a  na- 
tional currency  secured  by  United  States  bonds,  laid  the 
foundation  for  sound  banking  in  America.  Thoughtful 
financiers  gradually  saw  the  need  of  a  more  elastic  cur- 
rency. Economic  students  advanced  the  thought  that  a 
bond-secured  circulation  should  be  supplemented,  if  not 
replaced,  by  currency  having  its  security  in  commercial 
operations. 

In  1913  the  Federal  Reserve  Act  was  passed  "to 
furnish  an  elastic  currency"  by  permitting  the  Federal 
Reserve  Banks  to  issue  notes  secured  by  commercial  paper 
and  a  reserve  of  40%  in  gold.  The  Federal  Reserve  Act 
has  thus  lent  to  our  circulating  medium  an  element  of  ex- 
pansion and  contraction  which  is  governed  by  actual 
business  demands. 

This  has  been  made  all  the  more  real  through  the 
greater  latitude  given  to  the  use  of  acceptances  by  the 
Federal  Reserve  Act.  The  National  Bank  Act  of  1864 
gave  the  national  banks  the  power  to  discount  bills  of 
exchange  and  acceptances  of  third  parties.  The  right  to 
lend  the  bank's  credit  by  assuming  the  obligation  of  an 
acceptor  was  only  authorized  by  the  passage  of  the  Fed- 
eral Reserve  Act  in  1913.  The  original  provisions  of  the 
Act,  however,  limited  the  acceptance  of  drafts  or  bills 
of  exchange  to  those  growing  out  of  transactions  involv- 


ing  the  importation  or  exportation  of  goods.  By  amend- 
ments to  the  Act,  approved  September  7,  1916,  and  June 
21,  1917,  the  power  to  accept  has  been  extended  to  drafts 
or  bills  of  exchange  of  certain  domestic  transactions  and 
to  those  made  for  the  purpose  of  creating  dollar  exchange. 

The  adoption  of  the  Federal  Reserve  Act  must  be 
taken  as  an  indorsement  of  the  policy  of  strictly  com- 
mercial banking  always  recognized  as  the  sphere  of  the 
National  Bank  of  Commerce  in  New  York.  From  its 
inception  this  bank  has  been  in  the  forefront  of  commercial 
development  and  necessarily  has  played  its  part  in  spread- 
ing the  use  of  acceptances.  In  its  statement  of  condition 
as  of  June  20,  1917,  the  Bank  showed  outstanding  Ac- 
ceptances aggregating  $13,612,427.84. 

The  National  Bank  of  Commerce  in  New  York  is  in 
close  touch  with  the  acceptance  and  discount  market  and 
with  any  new  developments  in  it  and  will  answer  inquiries 
of  bankers  and  business  men  on  the  general  subject  of 
acceptances  or  with  regard  to  changes  in  the  rules  or  regu- 
lations governing  them. 

Attention  of  Readers  is  directed  to  the  comprehensive 
index  at  the  conclusion  of  this  volume. 


ACCEPTANCES 

Bankers'  Acceptances 

The  Federal  Reserve  Act  was  approved  December 
23,  1913.  This  Act  gave  the  right  to  National  Banks  to 
lend  their  credit  by  assuming  the  obligation  of  an  ac- 
ceptor. This  power  was  limited  to  the  acceptance  of 
drafts  or  bills  of  exchange  which  grew  out  of  the  trans- 
actions involving  the  importation  or  exportation  of  goods. 
By  amendments  to  the  Federal  Reserve  Act  approved 
September  7th,  1916,  and  June  21st,  1917,  the  acceptance 
powers  of  member  banks  in  the  Federal  Reserve  System 
were  widened  considerably.  The  following  classes  of  com- 
mercial paper  are  now  eligible  for  acceptance  by  banks 
under  regulations  and  restrictions  as  indicated : 

Any  member  bank  may  accept: 

I.    Drafts  or  bills  of  exchange  drawn  upon  it  which 

grow  out  of  the  importation  or  exportation  of 

goods. 

(Section    13,   Federal    Reserve   Act.) 

II.  Drafts  or  bills  of  exchange  drawn  upon  it  which 
grow  out  of  transactions  involving  the  domestic 
shipment  of  goods,  provided  shipping  documents 
conveying  or  sex?uring  title  are  attached  at  the 
time  of  acceptance. 

( Ainendiiieiit    to    Section    13,   Federal    Reserve   Act,   approved 
Sept.   7,   1916.) 

III.  Drafts  or  bills  of  exchange  drawn  upon  it  which 
are  secured  at  time  of  acceptance  by  a  warehouse 
receipt,*  or  other  such  document  conveying  or  se- 
curing title  covering  readily  marketable  staples. 

(Amendment   to   Section    13,   Federal   Reserve    Act,   approved 
Sept.   7,   1916.) 

*1.      The  warehouse  issuing  the  receipt  must  be  independent  of  the 
borrower. 

2.     Drawers   may   substitute   other   warehouse   receipts   for   those 
given  during  the  life  of  the  acceptance. 
(Informal   Ruling   of   the   Federal    Reserve   Board,    December,    1916.) 


The  three  classes  of  drafts  or  bills  of  exchange  enumerated  above 
may  be  accepted  by  the  member  banks,  but  are  limited  by  the  follow- 
ing conditions : 

A.  The  drafts  or  bills  of  exchange  must  not  run  for  a  longer 
period  than  six  months. 

(Section   13,   Federal   Reserve  Act.) 

B.  Unsecured  drafts  or  bills  of  exchange  of  any  one  indi- 
vidual, company,  firm  or  corporation  must  not  be  accepted 
in  excess  of  10%  of  the  bank's  capital  and  surplus,  unless 
the  drafts  are  secured  either  by  attached  documents  or  by 
some  other  actual  security*  growing  out  of  the  same  trans- 
action as  the  acceptance.** 

(Amendmeut    to    Federal    Reserve    Act,    approved    Sept.    7, 
1916.) 


*This  security  may  consist  of: 

I.   Shipping  documents. 

II.   Warehouse  receipts. 

III.   Trust  receipts  which  do  not  enable  the  borrower  to  obtain  the 
goods  for  his  own  use. 

The  10%  limitation,  however,  will  apply  in  the  case  of  the  ordi- 
nary trust  receipt  which  gives  only  a  lien  on  the  goods  in  the  hands 
of  the  purchaser,  or  on  their  proceeds.  The  accepting  bank  must 
remain  secured  in  the  manner  prescribed  at  the  time  of,  and  during 
the  life  of,  the  acceptance  in  order  to  be  exempt  from  the  10%  limitation. 
(Informal  Ruling  of  Federal  Reserve  Board,  March  13,  1917.) 

**Section  5200  United  States  Revised  Statutes  holds,  "The 
total  liabilities  to  any  association,  of  any  person,  or  of  any  com- 
pany, corporation,  or  firm  for  money  borrowed,  including  in  the  liabili- 
ties of  a  company  or  firm  the  liabilities  of  the  several  members  thereof, 
shall  at  no  time  exceed  one-tenth  of  the  capital  stock  and  surplus  of  the 
bank:  Provided,  however,  that  the  total  of  such  liabilities  shall  in  no 
event  exceed  30  per  cent,  of  the  capital  stock  of  the  association.  But 
the  discount  of  bills  of  exchange  drawn  in  good  faith  against  actually 
existing  values,  and  the  discount  of  commercial  or  business  paper  actu- 
ally owned  by  the  person  negotiating  the  same  shall  not  be  considered 
as  money  borrowed."  The  limitations  above  imposed  on  the  liabilities 
incurred  by  any  national  bank  do  not  apply  to  the  acceptances  of  such 
banks,  since  they  apply  to  the  indebtedness  arising  between  the  drawer 
and  the  accepting  bank.  Thus  if  a  member  bank  merely  contracts  to 
pay  an  obligation  at  maturity  by  accepting  a  draft  or  bill  of  exchange 
drawn  against  it  and  this  acceptance  is  discounted  with  a  third  party, 
the  customer  procuring  the  acceptance  cannot  be  said  to  have  bor- 
rowed money  from  the  accepting  bank,  but  has  merely  borrowed  its 
credit,  and  such  an  acceptance  should  not  be  treated  as  a  liability  for 
money  borrowed  from  such  bank  within  the  meaning  of  Section  5200. 
(The  above  is  an  Informal  Ruling  of  the  Federal  Reserve  Board, 
Jan.  8,  1916,  and  confirmed  by  Opinion  of  Counsel,  Oct.  27,  1916.) 
But  in  the  case  where  a  member  bank  purchases  its  own  acceptances, 
they  must  be  treated  as  loans,  and  as  such  are  subject  to  the  above 
10  per  cent,  limitation.  (Informal  Ruling  of  Federal  Reserve  Board, 
Not.  27,  1916.) 

8 


C.  Outstanding  drafts  or  bills  of  exchange  may  not  be  accept- 
ed in  an  aggregate  of  more  than  one-half  of  the  bank's 
paid-up  and  unimpaired  capital  and  surplus.  But  upon 
application  to  the  Federal  Reserve  Board  the  bank  may 
secure  authority  to  accept  up  to  100%  of  its  paid-up  and 
unimpaired  capital  and  surplus:  Provided  that  the  aggre- 
gate growing  out  of  domestic  acceptances  shall  in  no  event 
exceed  50%  of  such  capital  and  surplus. 

( AmendmeutM,    Section    13,   Federal    Reserve   Act,   approved 
Sept.   7,   1916,  June  21,   1917.) 

IV.  Drafts  or  bills  of  exchange  having  not  more  than 
three  months'  sight  to  run,  which  are  drawn  by 
banks  or  bankers  in  foreign  countries  or  depend- 
encies or  insular  possessions  of  the  United  States, 
for  the  purpose  of  furnishing  dollar  exchange  as 
required  by  the  usages  of  trade  in  the  different 
countries,  dependencies  or  insular  possessions. 

(Amendment,     Section     13,     Federal     Reserve     Act,     approved 
Sept.    7,    1916.)  • 

In  the  December,  1916,  Bulletin,  the  Federal  Re- 
serve Board  made  the  following  statement : 

"The  Board  has  decided  to  permit  member  banks 
to  accept  foreign  drafts  drawn  upon  them  by  banks  or 
bankers  in  the  following  countries :  Porto  Rico,  Santo 
Domingo,  Costa  Rica,  Peru,  Chile,  Venezuela, 
Argentine  Republic  and  Bolivia,  as  required  by  the 
usages  and  trade  in  the  respective  countries." 

No  member  bank  shall  accept  such  drafts  or  bills  of 
exchange  for  any  one  bank  to  an  amount  exceeding  in  the 
aggregate  10%  of  the  paid-up  and  unimpaired  capital  and 
surplus  of  the  accepting  bank,  unless  the  draft  or  bill  of 
exchange  is  accompanied  by  documents  conveying  or  se- 
curing title  or  by  some  other  adequate  security.  No  mem- 
ber bank  shall  accept  such  drafts  or  bills  of  exchange  in 


*The  Federal  Reserve  Board  has  prescribed  that  any  member 
bank  desiring  to  accept  drafts  drawn  by  banks  or  bankers  in 
foreign  countries,  dependencies,  or  insular  possessions  of  the  United 
States,  for  the  purpose  of  furnishing  dollar  exchange,  shall  first  make 
an  application  to  the  Federal  Reserve  Board  setting  forth  the  usages 
of  trade  in  the  different  countries,  dependencies  or  insular  possessions 
in  which  such  banks  or  bankers  are  located. 


an  amount  exceeding  at  any  time  in  the  aggregate  50% 
of    its    paid-up    and    unimpaired    capital    and    surplus. 

(Circular  Federal  Reserve  Board  IVo.  2,   Res'iilation  C,   Series   1916.) 

The  50%  limit  imposed  upon  the  amount  of  drafts 
which  a  member  bank  may  accept  for  the  purpose  of 
furnishing  dollar  exchange  is  separate  and  distinct  from 
and  not  included  in  the  limits  imposed  by  section  13  upon 
the  amount  of  drafts  or  bills  of  exchange  drawn  against 
the  shipment  of  goods  or  against  warehouse  receipts  cover- 
ing readily  marketable  staples,  which  a  member  bank  may 
accept. 

(Opinion   of   Counsel,    June    15,    1017.) 

We  give  below  in  abbreviated  form  the  Informal  Rul- 
ings of  the  Federal  Reserve  Board  and  Opinions  of  Coun- 
sel dealing  with  bankers'  acceptances. 

1.  Status  of  goods  forming  the  basis  of  acceptances. 

It  is  not  necessary  that  the  specific  goods  cov- 
ered by  an  acceptance  be  identified  at  the  time  of 
acceptance.  In  fact,  goods  may  be  purchased  and 
shipped  subsequent  to  the  time  of  acceptance  pro- 
vided  there   is    a   bona   fide    contract    for   same. 

(Informal  Ruling:  of  Federal  Reserve  Board,   Nov,    11,   1915.) 

2.  Renewing  of  acceptances. 

Upon  the  payment  of  an  acceptance  the  ac- 
cepting bank  may,  for  a  reasonable  period,  accept 
new  drafts  for  the  financing  of  the  original  trans- 
action, even  after  the  shipment  and  delivery  of  the 
goods:  provided,  however,  that  such  renewals  be 
stipulated  in  the  original  contract  as  an  incidental 
condition  of  the  transaction  of  importation  or  ex- 
portation    upon     which     acceptance     is     based. 

(Informal   Ruling'  of   Federal    Reserve   Board,   Nov.   9,    1915.) 

But  a  holder  must  never  be  under  an  obliga- 
tion to  renew  the  acceptance  even  for  less  than  six 
months. 

Similarly  a  letter  of  credit  or  credit  agree- 
ment may  lawfully  be  made  by  a  national  bank, 
which  will  extend  by  its  terms  for  a  period  ex- 
ceeding six  months ;  the  agreement  must  not  be  of 
such  character  as  will  impose  upon  the  holders  of 

10 


drafts  accepted  thereunder  any  obligation  to  renew 
such  drafts,  or  that  the  period  of  acceptance  shall 
exceed  six  months  in  duration  as  to  any  specified 
draft. 

(Federal   Reserve   Bulletin,    September,    1915.) 

3.  Bank  purchasing  its  own  acceptances. 

Where  a  member  bank  purchases  its  own  ac- 
ceptances before  maturity  such  acceptances  are  not 
included  in  the  aggregate  authorized  by  Section  13. 

(Opinion  of  Counsel,  Jnly  25,   1916.) 

4.  General   rules  covering  drafts  and   bills  of  ex- 

change. 

a.  A  bill  or  note  made  payable  "in  exchange"  is 
"non-negotiable." 

(Opinion  of  Counsel,   Ang.   10,   1916.) 

b.  A  provision  in  a  draft  or  bill  of  exchange  stat- 
ing that  it  is  "payable  with  interest  at  the  rate 
of  per  annum  after  maturity  if  payment 
is  delayed"  does  not  affect  its  negotiability. 

5.  Acceptances  based  on  imports  or  exports. 

In  order  that  a  transaction  may  be  considered 
as  involving  tlie  importation  or  exportation  of 
goods,  in  the  case  of  an  exporter  in  a  foreign  coun- 
try, he  must  not  only  intend  to  sell  the  goods  in  a 
foreign  country,  but  there  must  be  an  actual  con- 
tract of  sale.  It  must  appear  that  the  drafts  are 
merely  drawn  in  advance  of  the  actual  shipment  of 
goods  under  contract  of  sale. 

(Inforuinl    Ruling,   Federal   Reserve  Board,   Marcli  34,   1917.) 

6.  Acceptances  drawn  to  finance  the  future  shipment 

of  goods. 

The  Board  is  of  the  opinion  that  a  national 
bank  may  properly  accept  a  draft  drawn  for  the 
purpose  of  importing  goods  whether  or  not  the 
sale  of  the  goods  under  consideration  has  actually 
been  consimimated  at  the  time  of  the  acceptance 
of  the  draft.  If  the  accepting  bank  is  assured  that 
the  proceeds  of  the  draft  will  ultimately  be  used 
solely  for  the  purpose  of  financing  a  transaction 
involving  the  importation  of  goods,  it  is  immaterial 

11 


whether  or  not  the  goods  have  actually  been  sold  at 
the  time  of  acceptance.  In  fact,  it  is  not  even 
necessary  that  the  goods  to  be  sold  be  identified  at 
the  time  of  acceptance.  The  accepting  bank,  how- 
ever, must  be  reasonably  sure  that  the  draft  is 
drawn  for  the  purpose  of  financing  a  transaction 
involving  the  importation  or  exportation  of  goods, 
and  that  its  proceeds  will  be  used  for  that  purpose. 

(Informal   Ruling;    Federal    ReserTe   Board,   Jane    14,    1917.) 

A  member  bank  may  accept  drafts  drawn  upon  it : 

1.  In  settlement  of  advances  for  cotton  being  ac- 
cumulated    by     cotton     buyers     for     export. 

(Informal   Rullngr,   Federal  Reaer^e   Board,   Anar.   6,   1916.) 

2.  Against  shipment  of  bullion. 

(Informal   RnlingT)   Federal   Reserve   Board,   Dec.   4,    1916.) 

A  member  bank  may  not  accept  drafts  drawn : 

1.  By  an  acceptance  house  upon  a  member  bank 
pledging  as  collateral  an  acceptance  based  on 
imports  and  exports. 

(Informal   Rnlingr,    Federal   Reserve   Board,    Dec.   8,    1916.) 


12 


Acceptances  for  Investment  by  a  Member  Bank 

The  amount  of  acceptances  which  may  he  purchased 
by  a  member  bank. 

Section  5200,  as  amended  in  1906,  reads  as  follows: 
"The  total  liabilities  to  any  association,  of  any  one  person^ 
or  of  any  company,  corporation,  or  firm  for  money  bor- 
rowed, including  in  the  liabilities  of  a  company  or  firm  the 
liabilities  of  the  several  members  thereof,  shall  at  no  time 
exceed  one-tenth  part  of  the  amount  of  the  capital  stock 
of  such  association,  actually  paid  in  and  unimpaired,  and 
one-tenth  part  of  its  unimpaired  surplus  fund:  Provided, 
however,  that  the  total  of  such  liabilities  shall  in  no  event 
exceed  thirty  per  centum  of  the  capital  stock  of  the  asso- 
ciation. But  the  discount  of  bills  of  exchange  drawn  in 
good  faith  against  actually  existing  values,  and  the  dis- 
count of  commercial  or  business  paper  actually  owned  by 
the  person  negotiating  the  same  shall  not  be  considered 
as  money  borrowed." 

"Bills  of  exchange"  may  be  taken  as  including  bank- 
ers' and  trade  acceptances  as  defined  by  the  Federal  Re- 
serve Board,  as  the  mere  fact  of  their  having  been  ac- 
cepted does  not  destroy  their  essential  character. 

The  "discount"  of  such  bills  may  be  taken  as  includ- 
ing the  purchase  of  them  in  their  accepted  form  by  a  na- 
tional bank  in  the  open  market. 

A  ruling  of  the  Counsel  of  the  Federal  Reserve 
Board,  dated  Nov.  27,  1916,  defines  the  term  "actually- 
existing  values"  as  follows: 

1.  A  bill  of  exchange  discounted  before  acceptance 
must  be  accompanied  by  shipping  documents,  warehouse 
receipts,  or  other  papers  securing  title  to  the  goods  sold 
if  it  is  to  be  treated  as  drawn  against  existing  values. 

13 


2.  If  the  bill  is  discounted  after  acceptance  it  may  be 
treated  as  drawn  against  existing  values  if  drawn  against 
the  drawee  at  the  time  of,  or  within  a  reasonable  time  after, 
the  shipment  or  delivery  of  the  goods  ^old.  There  must 
be  reasonable  grounds  to  believe  at  the  time  the  bill  is 
drawn  that  the  goods  are  in  existence  in  the  hands  of  the 
drawee  either  in  their  original  form  or  in  the  shape  of  the 
proceeds  of  their  sale. 

In  order  to  decide  whether  the  amount  of  the  accept- 
ances of  one  party,  individual  or  firm,  purchased  by  a  na- 
tional bank  is  limited  under  Section  5200  to  10%  of  the 
paid-up  capital  and  surplus  of  the  national  bank,  it  is 
necessary  to  determine  the  conditions  under  which  the  bill 
of  exchange  was  drawn. 

Section  13  of  the  Federal  Reserve  Act  as  amended 
permits  national  banks  to  accept  bills  of  exchange  drawn 
upon  it : 

1.  Which  grow  out  of  the  importation  or  exportation 
of  goods. 

2.  Which  grow  out  of  transactions  involving  the  do- 
mestic shipment  of  goods  provided  shipping  documents 
conveying  or  securing  title  are  attached  at  the  time  of  ac- 
ceptance. 

3.  Which  are  secured  at  the  time  of  acceptance  by  a 
warehouse  receipt,  or  other  such  document  conveying  or 
securing  title  covering  readily  marketable  staples. 

4.  Which  are  drawn  by  banks  or  bankers  in  foreign 
countries  or  dependencies  or  insular  possessions  of  the 
United  States  for  the  purpose  of  furnishing  dollar  ex- 
change as  required  by  the  usages  of  trade  in  the  respective 
countries,  dependencies,  or  insular  possessions  in  which 
such  banks  or  bankers  are  located. 

It  is  clear  in  the  light  of  the  manner  in  which  the 
Counsel  of  the  Federal  Reserve  Board  construes  "actual 
existing  values"  that  acceptances  of  national  banks  and 

14 


also  of  non-member  banks  and  trust  companies,  which 
come  mider  1,  2  and  3,  may  be  considered  as  drawn  against 
"actual  existing  values."  In  the  case  of  4  such  would  not 
be  the  fact,  for  if  the  drawing  of  the  draft  could  be  identi- 
fied w^ith  an  actual  shipment  of  goods,  then  it  would  fall 
under  1. 

We  may  come  to  the  conclusion  that  a  national  bank 
may  pin-chase  the  acceptances  of  national  or  state  banks,  or 
of  trust  companies,  to  an  unlimited  extent,  even  though 
they  are  the  liabilities  of  one  party,  firm  or  corporation, 
provided  they  involve  the  importation  or  exportation  of 
goods,  the  domestic  shipment  of  goods,  and  are  accom- 
panied by  shipping  documents,  or  were  secured  at  the  time 
of  acceptance  by  a  warehouse  receipt,  or  other  such  docu- 
ment conveying  or  securing  title  covering  readily  market- 
able staples.  Trade  acceptances  maj^  also  be  purchased 
provided  they  can  be  classed  as  being  drawn  against  ac- 
tually existing  values  as  defined  by  the  Counsel  of  the 
Federal  Reserve  Board. 


15 


REDISCOUNTS   AND  OPEN 
MARKET    TRANSACTIONS 

The  discount,  rediscount,  purchase  and  sale  by  any 
Federal  Reserve  bank  of  domestic  and  foreign  bills  of  ex- 
change, and  of  acceptances  authorized  by  this  Act,  shall  be 
subject  to  such  restrictions,  limitations  and  regulations  as 
may  be  imposed  by  the  Federal  Reserve  Board. 

(Section   13,   Federal  Reserve  Act,   as  amended   Sept.    7,   1916.) 

Rediscounts 

Any  Federal  Reserve  Bank  may  rediscount  for  its 
member  banks : 

1.  Promissory  Notes. 

2.  Drafts  or  Bills  of  Exchange. 

3.  Trade  Acceptances. 

4.  Agricultural  Paper  (6  months). 

5.  Commodity  Paper. 

6.  Bankers'  Acceptances. 

Definitions  : 

(As  griven  by  Federal  Reserve  Board  In  Circular  No.  2,  Rearnla- 
tion  A,   Series  1916.) 

Promissory  Note — is  an  unconditional  promise,  in 
writing,  signed  by  the  maker,  to  pay,  in  the 
United  States,  at  a  fixed  or  determinable  future 
time,  a  sum  certain  in  dollars  to  order  or  to 
bearer. 

Draft  or  Bill  of  Exchange — is  an  unconditional  or- 
der in  writing,  addressed  by  one  person  to  an- 
other, signed  by  the  person  giving  it,  requiring 
the  person  to  whom  it  is  addressed  to  pay,  in  the 
United  States,  at  a  fixed  or  determinable  future 
time,  a  sum  certain  in  dollars  to  the  order  of  a 
specified  person. 

16 


Trade  Acceptance — is  a  draft  or  bill  of  exchange 
drawn  by  the  seller  on  the  purchaser  of  goods    ' 
sold  and  accepted  by  such  purchaser. 

Agricultural  Paper  (6  months) — is  a  note,  draft,  bill 
of  exchange  or  trade  acceptance  drawn  or  issued 
^  for  agricultural  purposes,  or  based  on  live  stock ; 

*  that  is,  a  note,  draft,  bill  of  exchange  or  trade 

S  acceptance,  the  proceeds  of  which  have  been  used 

or  are  to  be  used  for  agricultural  purposes,  in- 
cluding the  breeding,  raising,  fattening,  or  mar- 
keting of  live  stock,  and  which  has  a  maturity  at 
the  time  of  discount  of  not  more  than  six  months. 

Commodity  Paper— \s  a  note,  draft,  bill  of  exchange, 
I  or  trade  acceptance  accompanied  and  secured  by 

shipping  documents  or  by  a  warehouse,  terminal, 
or  other  similar  receipt,  covering  approved  and 
readily  marketable,  non-perishable  staples  prop- 
erly insured. 

Bankers'  A  cceptance— is  a  draft  or  bill  of  exchange  of 
which  the  acceptor  is  a  bank  or  trust  company,  or 
a  firm,  person,  company,  or  corporation  engaged 
in  the  business  of  granting  bankers'  acceptance 
credits. 

General  Regulations   Covering  Rediscounts  by  Federal 
t„^    ;  Reserve  Banks. 

(Circular    Xo.    2,    Federal    Reserve    Board,    Regrnlation    A,    Series 
1916.) 

The  above  forms  of  paper  are  eligible  for  rediscount 
provided : 

1.  The  proceeds  have  been  used  or  are  to  be  used  in 
producing,  purchasing,  carrying,  or  marketing 
goods*  in  one  or  more  of  the  steps  of  the  process 
of  production,  manufacture  or  distribution;  and 
not  for  permanent  or  fixed  investments  of  any 
kind,  such  as  land,  buildings  or  machinery. 

*"Goods"   is  construed  to  include  goods,  wares,  merchandise,  or 
1  agricultural  products,  including  live  stock. 

17 


2.  They  are  not  issued  for  carrying  or  trading  in  in- 
vestment securities  other  than  the  bonds  and  notes 
of  the  Government  of  the  United  States. 

3.  They  have  a  maturity  at  the  time  of  discount  of 
not  more  than  90  days ;  but,  if  drawn  or  issued  for 
agricultural  purposes  or  based  on  live  stock,  they 
may  have  a  maturity  at  the  time  of  discount  of  not 
more  than  six  months. 

4.  The  aggregate  of  notes,  drafts  and  bills  bearing 
the  signature  or  indorsement  of  any  one  borrower, 
whether  a  person,  company,  firm,  or  corporation, 
rediscounted  for  any  one  member  bank,  shall  at  no 
time  exceed  10  per  cent,  of  the  unimpaired  capital 
and  surplus  of  such  bank ;  but  this  restriction  shall 
not  apply  to  the  discount  of  bills  of  exchange  drawn 
in  good  faith  against  actually  existing  values. 

A  bill  of  exchange  discounted  before  accept- 
ance may  be  said  to  be  drawn  against  actually 
existing  values,  within  the  meaning  of  Section  13 
of  the  Federal  Reserve  Act,  when  and  only  when 
it  is  accompanied  by  shipping  documents,  ware- 
house receipts  or  other  papers  securing  title  to  the 
goods  sold.  An  accepted  bill  of  exchange,  unac- 
companied by  shipping  documents  or  other  such 
papers,  may  be  considered  as  drawn  against  ac- 
tually existing  values  if  drawn  at  the  time  of,  or 
within  a  reasonable  time  after,  the  shipment  or  de- 
livery of  the  goods  sold.  In  this  latter  case  there 
must  be  reasonable  grounds  to  believe  that  the 
goods  are  in  existence  in  the  hands  of  the  drawee 
either  in  their  original  form  or  in  the  shape  of 
the  proceeds  of  their  sale. 

(Opinion  of   Counsel,   ]<rov.   27,    1916.) 

5.  They  are  indorsed  by  a  member  bank. 

Special   Regulations   Covering   Rediscounts   by   Federal 
Reserve  Banks. 

(Circular    Fetleral    Reserve    Board    No.    Z,    Regulation    B,    Series 
1816.) 

1.  In  the  case  of  a  promissory  note  the  member  bank 
shall  certify  in  its  application  whether  the  note 

18 


offered  for  rediscount  has  been  discounted  for  a  de- 
positor or  another  member  bank  or  whether  it  has 
been  purchased  from  a  non-depositor,  and  whether 
a  financial  statement  of  the  borrower  is  on  file. 
The  requirement  of  a  statement  with  respect  to 
any  note  discounted  by  a  member  bank  for  a  de- 
positor or  another  member  bank  is  left  to  the  dis- 
cretion of  the  Federal  Reserve  Board  and  may  be 
waived : 

a.  If  it  is  secured  by  a  warehouse,  terminal  or 
other  similar  receipt  covering  goods  in  storage ; 

b.  If  the  aggregate  of  obligations  of  the  borrower, 
rediscounted  and  offered  for  rediscount  at  the 
Federal  Reserve  Bank,  is  less  than  a  sum  equal 
to  10%  of  the  paid-in  capital  of  the  member 
bank  and  does  not  exceed  $5,000. 

2.  In  the  case  of  commodity  paper  the  rate  of  inter- 
est or  discount — including  commission  charged  the 
maker — does  not  exceed  6%  per  annum. 

3.  In  the  case  of  bankers'  acceptances,  they  must  have 
been : 

a.  A  draft  or  bill  of  exchange  drawn  under  a 
credit  opened  for  the  purpose  of  conducting  or 
settling  accounts  resulting  from  a  transaction 
or  transactions  involving: 

(1)  The  shipment  of  goods  between  the 
United  States  and  any  foreign  country 
or  between  the  United  States  and  any 
of  its  dependencies  or  insular  posses- 
sions, or  between  foreign  countries. 

(2)  The  domestic  shipment  of  goods,  pro- 
vided shipping  documents  are  attached 
at  the  time  of  acceptance. 

19 


b.  A  draft  or  bill  of  exchange  which  is  secured  at 
the  time  of  acceptance  by  a  warehouse  receipt 
or  other  such  document  conveying  or  securing 
title  covering  readily  marketable  staples. 

c.  A  draft  or  bill  of  exchange  drawn  by  a  bank 
or  banker  in  a  foreign  country  or  dependency 
or  insular  possession  of  the  United  States  for 
the  purpose  of  furnishing  dollar  exchange  and 
accepted  or,  in  case  of  non-acceptances,  in- 
dorsed, by  a  member  bank. 

Such  drafts  or  bills  may  be  acquired  prior 
to  acceptance,  provided  they  have  the  indorse- 
ment of  a  member  bank. 


INFORMAL  RULINGS  OF  THE  FEDERAL  RESERVE  BOARD  AND 
OPINIONS  OF  COUNSEL 

The  law  places  no  limit  on  the  amount  of  commercial 
paper  which  a  member  bank  may  rediscount  with  the  Fed- 
eral Reserve  Bank,  leaving  the  matter  to  the  discretion  of 
the  Federal  Reserve  Board. 

(Informal      Ruling      of      Federal      Reserve      Board,      Aug.      4,      1916.) 

The  following  special  rulings  have  been  made  by  the  Fed- 
eral Reserve  Board  regarding  the  eligibility  of  paper  for 
rediscount  with  the  Federal  Reserve  Banks. 

Eligible — 

1.  Drafts  secured  by  pig  iron. 

(Informal  Rnllns  of  Federal  Reserve  Board,  Jnne  17,   1015.) 

2.  Crosstie  and  lumber  export  bills. 

(Informal  Rnllnji;  of  Federal  Reserve  Board,  Aug.  13,   1915.) 

3.  Bankers'  acceptances  covered  by  cattle  collateral. 

(Informal   Rnling   of   Federal   Reserve    Board,    Jan.    6,    1916.) 

4.  Renewals  of  drafts. 

(Informal   Ruling  of  Federal   Reserve   Board,   Jnne   6,    1916.) 

5.  Acceptances  covering  the  sale  of  advertising  space. 

(Opinion  of  Connsel,  Jan.   9,   1917.) 

6.  A  note,  draft  or  bill  of  exchange  drawn  for  the 
purpose  of  carrying  or  trading  in  bonds  or  notes 
of  the  United  States. 

(Federal  Reserve  Bulletin,  Marcb,  1917.) 

20 


Ineligible — 

1.  Bankers'  acceptances  covering  purchases  of  raw 

materials  and  payment  of  labor  used  in  manufac- 
turing and  unaccompanied  by  warehouse  receipts 
or  other  required  instruments. 

(Informal   Ruling   of   Federal    Reserve   Board,    Jan.    8,    1916.) 

2.  A  bill  of  exchange  bearing  a  qualified  or  condi- 
tional indorsement. 

(Opinion  of  Counsel,  July  25,  1916.) 

3.  A  demand  note  or  bill,  if  it  is  not  in  terms  payable 
within  the  prescribed  90  days,  but,  at  the  option  of 
the  holder,  it  may  not  be  presented  for  payment 
until  after  that  time. 

(Informal  Rulin;Br  of  Federal  Reserve  Board,  April  19,  1917.) 


21 


Open  Market  Transactions 

Section  14  of  the  Federal  Reserve  Act  authorizes 
Federal  Reserve  Banks  in  the  open  market  to  purchase 
from  or  to  sell  to  banks,  firms,  corporations  or  individuals, 
acceptances  and  bills  of  exchange  of  the  kinds  and  ma- 
turities made  eligible  by  the  Act  for  rediscount,  with  or 
without  the  indorsement  of  a  member  bank. 

The  following  regulations  cover  this  section  of  the 
Act: 

(Circular  of  Federal  Reserve  Board,  Re§;iiIatlom  B,  Series  No.  2,  1916.) 

1.  The  acceptances  or  bills  of  exchange  must  not  have 
been  issued  for  carrying  or  trading  in  stocks, 
bonds,  or  other  investment  securities,  except  bonds 
ai^id  notes  of  the  Government  of  the  United  States. 

2.  The  proceeds  of  the  acceptances  or  bills  of  ex- 
change must  not  have  been  used  or  must  not  be 
used  for  permanent  or  fixed  investments  of  any 
kind,  such  as  land,  buildings,  or  machinery,  or  for 
investments  of  a  merely  speculative  character. 

3.  The  bills  of  exchange  must  have  been  accepted  by 
the  drawee  prior  to  purchase  by  the  Federal  Re- 
serve Bank  unless  it  is  accompanied  and  secured 
by  shipping  documents  or  by  a  warehouse,  termi- 
nal, or  other  similar  receipt  conveying  security  title. 

4.  Trade  acceptances  must  be  issued  or  drawn  for 
agricultural,  industrial,  or  commercial  purposes  or 
the  proceeds  must  have  been  used  or  are  to  be  used 
for  the  purpose  of  producing,  purchasing,  carry- 
ing or  marketing  goods  in  one  or  more  of  the  steps 
of  the  process  of  production,  manufacture  or  dis- 
tribution. 

5.  The  acceptances  and  bills  of  exchange  must  have 
a  maturity  at  the  time  of  purchase  by  the  Federal 
Reserve  Bank  of  not  more  than  90  days. 

22 


6.  In  the  case  of  trade  acceptances  or  bills  of  ex- 
change, unless  they  are  indorsed  or  accepted  by 
member  banks  they  are  not  eligible  for  purchase 
unless  a  satisfactory  statement  has  been  furnished 
of  the  financial  condition  of  one  or  more  of  the 
parties  thereto,  and  in  the  case  of  an  acceptance 
the  acceptor  must  furnish  a  satisfactory  statement 
of  financial  condition.  (In  cases  where  this  is  im- 
possible, as  in  bills  dra\Mi  by  a  foreign  concern  or 
accepted  by  a  foreign  bank,  a  satisfactory  state- 
ment of  the  indorsing  bank  may  be  substituted. 

Informnl   KuIIufj;  of   Federal   Reserve   Board,  Jan.  3,   1916.) 

7.  Evidence  of  EligibOity — 

A  Federal  Reserve  Bank  shall  take  such  steps  as 
it  deems  necessary  to  satisfy  itself  as  to  the  eligibil- 
ity of  the  bill  offered  for  purchase,  unless  it  pre- 
sents prima  facie  evidence  thereof  or  bears  a  stamp 
or  certificate  affixed  by  the  acceptor  or  the  drawer, 
showing  that  it  is  a  trade  acceptance.  No  evidence 
of  eligibility  is  required  with  respect  to  a  bill  ac- 
cepted by  a  national  bank. 

INFORMAL  RULINGS  AND  OPINIONS  OP  COUNSEL. 

1.  Federal  Reserve  Banks  cannot  discount  commod- 
ity paper  directly  for  firms,  but  it  must  come 
through,  bearing  the  indorsement  of,  a  member 
bank. 

(Informal    Rnling   of   Federal   Reserve   Board,    Feb.    1,    1916.) 

2.  Promissory  notes  are  ineligible  for  purchase  in  the 
open  market. 

(Opinion  of  Counsel,  Oct.   8,   1915.) 

3.  A  bill  of  exchange  drawTi  by  an  agent,  branch 
house  or  foreign  agency  of  a  corporation  on  the 
corporation  itself  is  ineligible  for  purchase  in  the 
open  market. 

(Opinion   of   Counsel,    Aug.    3,    1916.) 


23 


FEDERAL  RESERVE  ACT 

Powers  of  Federal  Reserve  Banks, 

Section  1^  as  amended  to  date. 

"Any  Federal  Reserve  Bank  may  receive  from  anj'^  of 
its  member  banks,  and  from  the  United  States,  deposits 
of  current  funds  in  lawful  money,  national-bank  notes, 
Federal  Reserve  notes,  or  checks,  and  drafts,  payable  upon 
presentation,  and  also,  for  collection,  maturing  notes  and 
bills;  or,  solely  for  purposes  of  exchange  or  of  collection, 
may  receive  from  other  Federal  Reserve  Banks  deposits 
of  current  funds  in  lawful  money,  national-bank  notes,  or 
checks  upon  other  Federal  Reserve  Banks,  and  checks  and 
drafts,  payable  upon  presentation  within  its  district,  and 
maturing  notes  and  bills  payable  within  its  district;  or, 
solely  for  the  purposes  of  exchange  or  of  collection,  may 
receive  from  any  nonmember  bank  or  trust  company  de- 
posits of  current  funds  in  lawful  money,  national-bank 
notes.  Federal  reserve  notes,  checks  and  drafts  payable 
upon  presentation,  or  maturing  notes  and  bills :  Provided, 
such  nonmember  bank  or  trust  company  maintains  with  the 
Federal  reserve  bank  of  its  district  a  balance  sufficient  to 
offset  the  items  in  transit  held  for  its  account  by  the  Fed- 
eral reserve  bank:  Provided  further.  That  nothing  in  this 
or  any  other  section  of  this  act  shall  be  construed  as  pro- 
hibiting a  member  or  nonmember  bank  from  making 
reasonable  charges,  to  be  determined  and  regulated  by  the 
Federal  Reserve  Board,  but  in  no  case  to  exceed  10  cents 
per  $100  or  fraction  thereof,  based  on  the  total  of  checks 
and  drafts  presented  at  any  one  time,  for  collection  or  pay- 
ment of  checks  and  drafts  and  remission  therefore  by  ex- 
change or  otherwise;  but  no  such  charges  shall  be  made 
against  the  Federal  reserve  banks. 

24 


"Upon  the  indorsement  of  any  of  its  member  banks, 
which  shall  be  deemed  a  waiver  of  demand,  notice  and 
protest  by  such  bank  as  to  its  own  indorsement  exclu- 
sively, any  Federal  Reserve  Bank  may  discount  notes, 
drafts,  and  bills  of  exchange  arising  out  of  actual  com- 
mercial transactions;  that  is,  notes,  drafts,  and  bills  of 
exchange  issued  or  drawn  for  agricultural,  industrial,  or 
conmiercial  purposes,  or  the  proceeds  of  which  have  been 
used,  or  are  to  be  used,  for  such  purposes,  the  Federal 
Reserve  Board  to  have  the  right  to  determine  or  define  the 
character  of  the  paper  thus  eligible  for  discount,  within 
the  meaning  of  this  Act.  Nothing  in  this  Act  contained 
shall  be  construed  to  prohibit  such  notes,  drafts,  and  bills 
of  exchange,  secured  by  staple  agricultural  products,  or 
other  goods,  wares,  or  merchandise  from  being  eligible 
for  such  discount;  but  such  definition  shall  not  include 
notes,  drafts,  or  bills  covering  merely  investments  or  is- 
sued or  drawn  for  the  purpose  of  carrying  or  trading 
in  stocks,  bonds,  or  other  investment  securities,  except 
bonds  and  notes  of  the  Government  of  the  United  States. 
Notes,  drafts,  and  bills  admitted  to  discount  under  the 
terms  of  this  paragraph  must  have  a  maturity  at  the  time 
of  discount  of  not  more  than  ninety  days,  exclusive  of 
days  of  grace:  Provided,  That  notes,  drafts,  and  bills 
drawn  or  issued  for  agricultural  purposes  or  based  on 
live  stock  and  having  a  maturity  not  exceeding  six  months, 
exclusive  of  days  of  grace,  may  be  discounted  in  an  amount 
to  be  limited  to  a  percentage  of  the  assets  of  the  Federal 
Reserve  Bank,  to  be  ascertained  and  fixed  by  the  Federal 
Reserve  Board. 

"The  aggregate  of  such  notes,  drafts,  and  bills  bear- 
ing the  signature  or  indorsement  of  any  one  borrower, 
whether  a  person,  company,  firm,  or  corporation,  redis- 
counted  for  any  one  bank  shall  at  no  time  exceed  ten  per 
centum  of  the  unimpaired  capital  and  surplus  of  said 
bank;  but  this  restriction  shall  not  apply  to  the  discount 
of  bills  of  exchange  drawn  in  good  faith  against  actually 
existing  values. 

"Any  Federal  Reserve  Bank  may  discount  accept- 
ances of  the  kinds  hereinafter  described,  which  have  a 

25 


maturity  at  the  time  of  discount  of  not  more  than  three 
months'  sight,  exclusive  of  days  of  grace,  and  which  are 
indorsed  by  at  least  one  member  bank. 

"Any  member  bank  may  accept  drafts  or  bills  of  ex- 
change drawn  upon  it  having  not  more  than  six  months' 
sight  to  run,  exclusive  of  days  of  grace,  which  grow  out  of 
transactions  involving  the  importation  or  exportation  of 
goods;  or  which  grow  out  of  transactions  involving  the 
domestic  shipment  of  goods  provided  shipping  documents 
conveying  or  securing  title  are  attached  at  the  time  of 
acceptance;  or  which  are  secured  at  the  time  of  accept- 
ance by  a  warehouse  receipt  or  other  such  document  con- 
veying or  securing  title  covering  readily  marketable 
staples.  No  member  bank  shall  accept,  whether  in  a  for- 
eign or  domestic  transaction,  for  any  one  person,  com- 
pany, firm,  or  corporation  to  an  amount  equal  at  any  time 
in  the  aggregate  to  more  than  ten  per  centum  of  its  paid- 
up  and  unimpaired  capital  stock  and  surplus,  unless  the 
bank  is  secured  either  by  attached  documents  or  by  some 
other  actual  security  growing  out  of  the  same  transaction 
as  the  acceptance ;  and  no  bank  shall  accept  such  bills  to  an 
amount  equal  at  any  time  in  the  aggregate  to  more  than 
one-half  of  its  paid-up  and  unimpaired  capital  stock  and 
surplus:  Provided,  however.  That  the  Federal  Reserve 
Board,  under  such  general  regulations  as  it  may  prescribe, 
which  shall  apply  to  all  banks  alike  regardless  of  the 
amount  of  capital  stock  and  surplus,  may  authorize  any 
member  bank  to  accept  such  bills  to  an  amount  not  ex- 
ceeding at  any  time  in  the  aggregate  one  hundred  per 
centum  of  its  paid-up  and  unimpaired  capital  stock  and 
surplus:  Provided,  further.  That  the  aggregate  of  ac- 
ceptances growing  out  of  domestic  transactions  shall  in  no 
event  exceed  fifty  per  centum  of  such  capital  stock  and 
surplus. 

"Any  Federal  Reserve  Bank  may  make  advances  to 
its  member  banks  on  their  promissory  notes  for  a  period 
not  exceeding  fifteen  days  at  rates  to  be  established  by  such 
Federal  Reserve  Banks,  subject  to  the  review  and  deter- 
mination of  the  Federal  Reserve  Board,  provided  such 
promissory  notes  are  secured  by  such  notes,  drafts,  bills  of 

26 


exchange,  or  bankers'  acceptances  as  are  eligible  for  redis- 
count or  for  purchase  by  Federal  Reserve  Banks  under  the 
provisions  of  this  Act,  or  by  the  deposit  or  pledge  of  bonds 
or  notes  of  the  United  States." 

Section  fifty- two  hundred  and  two  of  the  Revised 
Statutes  of  the  United  States  is  hereby  amended  so  as  to 
read  as  follows:  "No  national  banking  association  shall 
at  any  time  be  indebted,  or  in  any  way  liable,  to  an  amount 
exceeding  the  amount  of  its  capital  stock  at  such  time 
actually  paid  in  and  remaining  undiminished  by  losses  or 
otherwise,  except  on  account  of  demands  of  the  nature  fol- 
lowing : 

"First.    Notes  of  circulation. 

"Second.  Moneys  deposited  with  or  collected  by  the 
association. 

"Third.  Bills  of  exchange  or  drafts  drawn  against 
money  actually  on  deposit  to  the  credit  of  the  association, 
or  due  thereto. 

"Fourth.  Liabilities  to  the  stockholders  of  the  asso- 
ciation for  dividends  and  reserve  profits. 

"Fifth.  Liabilities  incurred  under  the  provisions  of 
the  Federal  Reserve  Act. 

"The  discount  and  rediscount  and  the  purchase  and 
sale  by  any  Federal  Reserve  Bank  of  any  bills  receivable 
and  of  domestic  and  foreign  bills  of  exchange,  and  of  ac- 
ceptances authorised  by  this  Act,  shall  be  subject  to  such 
restrictions,  limitations,  and  regulations  as  may  be  imposed 
by  the  Federal  Reserve  Board. 

"That  in  addition  to  the  powers  now  vested  by  law  in 
national  banking  associations  organized  under  the  laws 
of  the  United  States  any  such  association  located  and 
doing  business  in  any  place  the  population  of  which  does 
not  exceed  five  thousand  inhabitants,  as  sliown  by  the 
last  preceding  decennial  census,  may,  under  such  rules 
and  regulations  as  may  be  prescribed  by  the  Comptroller 
of  the  Currency,  act  as  the  agent  for  any  fire,  life,  or 

27 


other  insurance  company  authorized  by  the  authorities 
of  the  State  in  which  said  bank  is  located  to  do  business 
in  said  State,  by  soliciting  and  selling  insurance  and  col- 
lecting premiums  on  policies  issued  by  such  company; 
and  may  receive  for  services  so  rendered  such  fees  or  com- 
missions as  may  be  agreed  upon  between  the  said  associa- 
tion and  the  insurance  company  for  which  it  may  act  as 
agent ;  and  may  also  act  as  the  broker  or  agent  for  others 
in  making  or  procuring  loans  on  real  estate  located  within 
one  hundred  miles  of  the  place  in  which  said  bank  may  be 
located,  receiving  for  such  services  a  reasonable  fee  or 
commission:  Provided,  however,  That  no  such  bank  shall 
in  any  case  guarantee  either  the  principal  or  interest  of 
any  such  loans  or  assume  or  guarantee  the  payment  of 
any  premium  on  insurance  policies  issued  through  its 
agency  by  its  principal:  And  provided  further.  That  the 
bank  shall  not  guarantee  the  truth  of  any  statement  made 
by  an  assured  in  filing  his  application  for  insurance. 

"Any  member  bank  may  accept  drafts  or  bills  of  ex- 
change drawn  upon  it  having  not  more  than  three  months' 
sight  to  run,  exclusive  of  days  of  grace,  drawn  under  regu- 
lations to  be  prescribed  by  the  Federal  Reserve  Board  by 
banks  or  bankers  in  foreign  countries  or  dependencies  or 
insular  possessions  of  the  United  States  for  the  purpose 
of  furnishing  dollar  exchange  as  required  by  the  usages  of 
trade  in  the  respective  countries,  dependencies,  or  insular 
possessions.  Such  drafts  or  bills  may  be  acquired  by  Fed- 
eral Reserve  Banks  in  such  amounts  and  subject  to  such 
regulations,  restrictions,  and  limitations  as  may  be  pre- 
scribed by  the  Federal  Reserve  Board:  Provided,  however. 
That  no  member  bank  shall  accept  such  drafts  or  bills  of 
exchange  referred  to  in  this  paragraph  for  any  one  bank 
to  an  amount  exceeding  in  the  aggregate  ten  per  centum 
of  the  paid-up  and  unimpaired  capital  and  surplus  of  the 
accepting  bank  unless  the  draft  or  bill  of  exchange  is  ac- 
companied by  documents  conveying  or  securing  title  or  by 
some  other  adequate  security:  Provided  further.  That  no 
member  bank  shall  accept  such  drafts  or  bills  in  an  amount 
exceeding  at  any  time  the  aggregate  of  one-half  of  its 
paid-up  and  unimpaired  capital  and  surplus." 

28 


OPEN  MARKET  TRANSACTIONS 

Section  14}  as  amended  to  date. 

"Any  Federal  reserve  bank  may,  under  rules  and 
regulations  prescribed  by  the  Federal  Reserve  Board,  pur- 
chase and  sell  in  the  open  market,  at  home  or  abroad,  either 
from  or  to  domestic  or  foreign  banks,  firms,  corporations, 
or  individuals,  cable  transfers  and  bankers'  acceptances 
and  bills  of  exchange  of  the  kinds  and  maturities  bv  this 
Act  made  eligible  for  rediscount,  with  or  without  the  in- 
dorsement of  a  member  bank. 

"Every  Federal  reserve  bank  shall  have  power: 

"(a)  To  deal  in  gold  coin  and  bullion  at  home  or 
abroad,  to  make  loans  thereon,  exchange  Federal  reserve 
notes  for  gold,  gold  coin,  or  gold  certificates,  and  to  con- 
tract for  loans  of  gold  coin  or  bullion,  giving  therefor, 
when  necessary,  acceptable  security,  including  the  hypothe- 
cation of  United  States  bonds  or  other  securities  which 
Federal  reserve  banks  are  authorized  to  hold ; 

"(b)  To  buy  and  sell,  at  home  or  abroad,  bonds  and 
notes  of  the  United  States,  and  bills,  notes,  revenue  bonds, 
and  warrants  with  a  maturity  from  date  of  purchase  of 
not  exceeding  six  months,  issued  in  anticipation  of  the  col- 
lection of  taxes  or  in  anticipation  of  the  receipt  of  assured 
revenues  by  any  State,  county,  district,  political  subdivi- 
sion, or  municipality  in  the  continental  United  States,  in- 
cluding irrigation,  drainage  and  reclamation  districts,  such 
purchases  to  be  made  in  accordance  with  rules  and  regula- 
tions prescribed  by  the  Federal  Reserve  Board ; 

"(c)  To  purchase  from  member  banks  and  to  sell, 
with  or  without  its  indorsement,  bills  of  exchange  arising 
out  of  commercial  transactions,  as  hereinbefore  defined; 

29 


J 


w. 


"(d)  To  establish  from  time  to  time,  subject  to  re- 
view and  determination  of  the  Federal  Reserve  Board, 
rates  of  discount  to  be  charged  by  the  Federal  reserve 
bank  for  each  class  of  paper,  which  shall  be  fixed  with  a 
view  of  accommodating  commerce  and  business ; 

"(e)  To  establish  accounts  with  other  Federal  re- 
serve banks  for  exchange  purposes  and,  with  the  consent 
or  upon  the  order  and  direction  of  the  Federal  Reserve 
Board  and  under  regulations  to  be  prescribed  by  said 
board,  to  open  and  maintain  accounts  in  foreign  countries, 
appoint  correspondents,  and  establish  agencies  in  such 
countries  wheresoever  it  may  be  deemed  best  for  the  pur- 
pose of  purchasing,  selling,  and  collecting  bills  of  ex- 
change, and  to  buy  and  sell,  with  or  without  its  indorse- 
ment, through  such  correspondents  or  agencies,  bills  of  ex- 
change (or  acceptances)  arising  out  of  actual  commercial 
transactions  which  have  not  more  than  ninety  days  to  run, 
exclusive  of  days  of  grace,  and  which  bear  the  signature  of 
two  or  more  responsible  parties,  and,  with  the  consent  of 
the  Federal  Reserve  Board,  to  open  and  maintain  bank- 
ing accounts  for  such  foreign  correspondents  or  agencies. 
Whenever  any  such  account  has  been  opened  or  agency  or 
correspondent  has  been  appointed  by  a  Federal  reserve 
bank,  with  the  consent  of  or  under  the  order  and  direction 
of  the  Federal  Reserve  Board,  any  other  Federal  reserve 
bank  may,  with  the  consent  and  approval  of  the  Federal 
Reserve  Board,  be  permitted  to  carry  on  or  conduct, 
through  the  Federal  reserve  bank  opening  such  account  or 
appointing  such  agency  or  correspondent,  any  transaction 
authorized  by  this  section  under  rules  and  regulations  to 
be  prescribed  by  the  board." 


30 


DIGEST  OF  INFORMAL  RULINGS 

AND 

OPINIONS   OF   COUNSEL 

OF  THE 

FEDERAL  RESERVE  BOARD 

Acceptances 

OPINIONS  OF  COUNSEL 

Discount  of  Acceptances  indorsed  by  Member  Banks  Located  in  Another 

District. 

Federal  Reserve  Banks  may,  under  the  provisions  of 
Section  13,  discount  acceptances  based  on  the  importation 
or  exportation  of  goods,  provided  they  have  a  maturity  at 
time  of  discount  of  not  more  than  three  months,  and  pro- 
vided, further,  that  they  are  indorsed  by  at  least  one  mem- 
ber bank.  It  is  immaterial  whether  this  member  bank 
is  located  in  the  district  of  the  Federal  Reserve  Bank  which 
is  making  the  discount  or  in  any  other  district,  the  term 
"member  bank"  being  broad  enough  to  include  member 
banks  wherever  located. 

Such  discounts,  being  made  under  the  provisions  of 
Section  13,  are  eligible  as  collateral  security  for  Federal 
Reserve  notes  issued  under  the  provisions  of  Section  16. 

(Pase  98,   June,    1915,    Bulletin.) 

31 


Waiver  of  Demand,  Notice  and  Protest. 
The  acceptor  of  a  bill  of  exchange  is  the  principal 
debtor.  The  law  requires  that  notice  of  demand  and  pro- 
test be  given  to  parties  secondarily  liable  in  case  of  dis- 
honor. This  right  to  receive  notice  is  a  personal  one  which 
may  be  waived  by  the  parties  entitled  thereto — that  is,  the 
drawer  and  indorsers ;  but  such  waiver  has  no  effect  on  the 
acceptor  or  principal  debtor. 

(Page   377,   September,   1915,   Bulletin.) 

Member  Bank  Acceptances. 
When  a  member  bank  purchases  its  own  acceptance 
before  maturity  such  acceptance  need  not  be  included  in 
the  aggregate  of  acceptances  authorized  by  Section  13. 

(Page    397,    August,    1916,    Bulletin.) 

Qualified  Acceptances. 
A  bill  of  exchange  drawn  payable  "at  sight"  and  ac- 
cepted payable  in  three  months  is  a  qualified  or  conditional 
acceptance,  and  the  maker  and  prior  indorsers  are  released. 
The  instrument  in  effect  becomes  the  promissory  note  of 
the  acceptor,  and  would  not  come  within  the  exception  to 
Section  5200  as  a  "bill  of  exchange"  drawn  in  good  faith 
against  actually  existing  values. 

(Page  463,   September,    1916,   Bulletin.) 

Presentment  of  Bills  for  Acceptance. 
The  drawer  and  indorsers  of  a  bill  of  exchange  made 
payable  on  a  date  specified  in  the  bill  are  not  discharged 
by  a  failure  to  present  it  for  acceptance,  unless  the  bill  ex- 
pressly provides  that  it  must  be  presented  for  that  pur- 
pose, or  unless  it  is  payable  elsewhere  than  at  the  resi- 
dence or  place  of  business  of  the  drawee. 

(Page   60S,   November,    1916,  Bulletin.) 

Member  Bank  Acceptances. 
(a)    The  limitations  imposed  by  Section  5202,  Re- 
vised Statutes,  on  the  liabilities  incurred  by  any  national 
bank  do  not  apply  to  acceptances  of  such  banks. 

(h)   A  member  bank  may  legally  purchase  its  own 
acceptances,  but  such  a  transaction  is  equivalent  to  a  loan 

32 


or  advance  to  the  customer  for  whom  the  acceptance  was 
made  and  the  liability  of  such  customer  becomes  subject 
to  the  limitations  of  Section  5200,  Revised  Statutes. 

(c)  The  limitations  imposed  by  Section  5200,  Re- 
vised Statutes,  on  the  amount  of  money  which  may  be  bor- 
rowed by  any  individual  from  a  member  bank  do  not  ap- 
ply to  acceptances  of  such  bank. 

(d)  The  power  of  member  banks  to  accept  drafts  or 
bills  of  exchange  should  not  be  confused  with  the  power 
to  discount  the  acceptances  of  others. 

<PaKe  G80,   December,   1916,   Bulletin.) 

Bankers'  Acceptance  Secured  by  Bill  of  Sale. 
A  bankers'  acceptance  drawn  for  the  purpose  of  pur- 
chasing goods  secured  by  a  bill  of  sale  of  stock  in  hand  is 
not  eligible  for  purchase  by  Federal  Reserve  Banks  under 
the  provisions  of  Regulation  B,  Series  of  1916. 

(Page   684,   December,   1916,   Bolletin.) 

Place  of  Payment  of  Acceptances. 
An  acceptance  to  pay  at  a  particular  place  different 
from  the  residence  of  the  acceptor  is  a  general  acceptance, 
unless  it  expressly  states  that  the  bill  is  to  be  paid  there 
and  not  elsewhere,  and  does  not  render  the  bill  non-ne- 
gotiable. 

(Pasre    389,    April,    1917,    Bulletin.) 


INFORMAL  RULINGS 

Discount  of  Renewals. 

Acceptance  business  of  Federal  Reserve  Banks  is  not 
restricted  "to  the  original  transactions  only,"  if  the  trans- 
action has  not  been  liquidated.  When  the  first  acceptance 
matures  a  member  bank  may  renew  the  acceptance,  and 
there  is  no  reason  why  a  Federal  Reserve  Bank  may  not 
discount  such  renewed  acceptance  although  a  Federal  Re- 
serve Bank  must  not  engage  in  advance  to  make  such  dis- 
count of  a  renewal. 

(Page    126,    July,    1915,    Bulletin.) 

33 


A  national  bank  is  held  to  be  authorized  to  enter  into 
an  agreement  having  more  than  six  months  to  run  by  the 
terms  of  which  it  obligates  itself  for  a  period  of  time  speci- 
fied in  the  agreement  to  accept  drafts  drawn  upon  it,  pro- 
vided such  drafts  grow  out  of  transactions  involving  the 
importation  or  exportation  of  goods,  and  that  the  indi- 
vidual drafts  have  not  more  than  six  months'  sight  to  run. 
This  distinction  is  emphasized:  "While  a  letter  of  credit  or 
credit  agreement  may  lawf  uU}^  be  made  by  a  national  bank 
which  will  extend  by  its  terms  for  a  period  exceeding  six 
months,  the  agreement  must  not  be  of  such  a  character  as 
will  impose  upon  the  holders  of  drafts  accepted  thereunder 
any  obligation  to  renew  such  drafts  so  that  the  period  of 
acceptance  shall  exceed  six  months  in  duration  as  to  any 
specified  draft." 

(Page  269,   September,   1915,   Balletin.     See  also  page  584,  November, 
1916,  Bulletin.) 

Upon  payment  of  an  acceptance  the  accepting  bank 
may  for  a  reasonable  period  accept  new  drafts  for  the 
financing  of  the  original  transaction,  even  after  the  ship- 
ment and  delivery  of  the  goods,  provided  such  renewals  be 
stipulated  in  the  original  contract  as  an  incidental  condi- 
tion of  the  transaction  of  importation  or  exportation  upon 
which  the  acceptance  is  based. 

(Page  405,   December,    1915,   Bulletin.) 

Federal  Reserve  Banks  Determine  Eligibility. 

Federal  Reserve  Banks  must  determine  the  eligibility 
of  an  acceptance. 

(Page    363,    November,    1915,    Bulletin.) 

Trade  Acceptance. 

Tentatively  held  that  a  90-day  sight  draft  drawn  by 
a  firm  in  Calcutta  on  a  company  in  Boston  and  accepted  by 
that  firm,  covering  a  transaction  involving  the  transpor- 
tation of  merchandise  from  Calcutta  to  Honolulu,  is  a 
trade  acceptance  rather  than  a  bankers'  acceptance.  Rul- 
ing based  upon  facts  submitted  and  subject  to  local  con- 
ditions. 

(Page    404,    December,    1915,    Bulletin.) 

34 


Identification  of  Specific  Goods. 
Held  not  to  be  necessary  that  the  specific  goods  cov- 
ered by  an  acceptance  based  upon  an  import  or  export 
transaction  must  be  identified  at  the  time  of  the  accept- 
ance. 

(Page   405,    December,    1915,   Bulletin.) 

Goods  Involved. 

In  interpreting  the  word  "involved"  in  connection 
with  the  importation  or  exportation  of  goods,  upon  which 
an  acceptance  has  been  based,  it  is  held  that  goods  may  be 
purchased  and  shipped  subsequent  to  the  time  of  the  first 
acceptance,  provided  that  there  is  a  definite  bona  fide  con- 
tract for  the  shipment  of  the  goods  within  a  specified  and 
reasonable  time. 

(Page  405,   December,    1915,   Bulletin.) 

Good  Faith  a  Test. 
Good  faith  must  be  relied  upon  to  a  large  extent  in 
determining  whether  an  acceptance  is  based  upon  a  trans- 
action involving  the  importation  or  exportation  of  goods. 

(Pnse   406,   December,    1915,    Bulletin.) 

Banks  May  Ask  Assurances. 
Member  banks  may  best  protect  themselves  in  de- 
termining whether  acceptances  are  based  upon  the  expor- 
tation or  importation  of  goods  by  stipulating  the  right  at 
times  to  ask  for  substantiation  of  assurances  from  a  cus- 
tomer. 

(Page  406,  December,   1915,   Bulletin.) 

Evidence  from  State  Member  Banks. 

Federal  Reserve  Bank  reserves  the  right  to  ask  State 
member  banks  for  evidence  underlying  the  certification 
given  it  as  to  an  acceptance. 

(Page   406,   December,    1915,    Bulletin.) 

Responsibility  with  Federal  Reserve  Banks. 
Ultimate  responsibility  in  purchasing  acceptances  is 
held  to  rest  with  Federal  Reserve  Banks. 

(Page     13,     January,     1916,    Bulletin.) 

Contract  Not  Fulfilled. 
A  member  bank  would  be  justified,  if  fully  secured, 
in  accepting  drafts  drawn  by  a  local  cotton-buying  firm 

35 


having  a  contract  to  sell  to  foreign  buyers  if  the  transac- 
tion, after  having  been  made  in  good  faith,  ultimately  re- 
sulted in  the  sale  of  the  cotton  to  an  American  instead  of 
to  a  foreign  purchaser.  It  was  assumed  in  connection  with 
this  interpretation  of  Section  13  that  the  bank  had  re- 
ceived permission  from  the  Board  to  accept  drafts  or  bills 
of  exchange  drawn  upon  it;  that  the  cotton  buyers  had  a 
contract  to  sell  cotton  to  a  firm  of  Liverpool;  that  they 
held  the  cotton  subject  to  shipping  receipt  of  the  Liver- 
pool firm  and  that  because  of  freight  rates  and  shipping 
conditions  the  Liverpool  firm  changed  its  policy  and  di- 
rected the  sale  of  the  cotton. 

(Page     13,     January,     1916,     Bnlletln.) 

Statement  Form. 

Announcement  that  the  Federal  Reserve  Board  will 
require  statements  satisfactory  to  it  in  connection  with  ac- 
ceptances is  held  to  mean  that  the  statement  shall  be  satis- 
factory in  form. 

(Page     13,     January,     1916,     Bulletin.) 

Application  of  Section  5200. 

The  10  per  cent,  limitation  imposed  by  Section  5200 
of  the  Revised  Statutes  is  not  intended  to  apply  to  the 
mere  acceptance  of  a  bill  of  exchange,  but  the  provisions  of 
Section  5200  apply  to  the  indebtedness  arising  between 
the  drawer  of  the  bill  and  the  accepting  bank  in  case  the 
drawer  fails  to  furnish  funds  with  which  to  meet  the  ac- 
ceptance at  maturity. 

(Page  64,  February,  1916,  Bulletin.) 

Non-member  Trust  Company  Acceptances — When  Ineligible. 

Acceptances  drawn  by  a  manufacturer  on  and  ac- 
cepted by  a  trust  company  not  a  member  of  the  Federal 
Reserve  System,  the  proceeds  of  which  are  to  be  used  for 
purchases  of  raw  material  and  payment  for  labor  where 
the  goods  had  not  been  sold  and  no  warehouse  receipts  or 
other  instruments  could  be  furnished,  are  held  not  to  be 
eligible  for  purchase  by  a  Federal  Reserve  Bank. 

(Page  6.">,  February,   1916,  Bulletin.) 

36     . 


Bills  Drawn  in  Foreign  Countries. 

Authorizing  Federal  Reserve  Banks,  pending  a 
change  in  paragraph  5,  Regulation  T,  of  1915,  to  buy  bills 
of  exchange  drawn  in  foreign  countries  on  American  ac- 
ceptors where  in  case  it  is  impossible  to  obtain  information 
from  the  acceptor  or  drawer  a  satisfactory  statement  from 
the  indorsing  bank  or  banker  as  to  financial  condition  is 
obtained.  Discount  rate  for  bankers'  acceptances  includes 
domestic  acceptances. 

(Pagre    111,   March,    1916,   Bulletin.) 

Stamp  "Trade  Acceptance"  Has  No  Value. 

The  fact  that  a  loan  company  has  stamped  a  bill  a 
trade  acceptance  and  signed  as  "acceptor"  does  not  in  it- 
self make  it  a  trade  acceptance  and  it  is  not  eligible  for 
purchase  as  a  trade  acceptance. 

(Pase    112,   March,    1916,   Bulletin.) 

Must  be  Accepted  by  Drawee. 

A  draft  to  be  eligible  as  an  acceptance  must  be  ac- 
cepted by  the  drawee  and  not  by  anyone  else.  A  draft 
drawn  by  a  corporation  can  not  be  purchased  by  a  Federal 
Reserve  Bank  in  the  open  market  as  a  bankers'  acceptance. 
For  the  same  reason  such  a  draft  is  ineligible  as  a  trade  ac- 
ceptance. 

(Pagre    112,   March,    1916,   Bulletin.) 

Advances  on  Cotton  for  Export. 

Section  13  of  Federal  Reserve  Act  is  construed  to 
justify  a  national  bank  in  accepting  a  draft  drawn  upon  it 
in  settlement  of  advances  for  cotton  being  accumulated  by 
cotton  buyers  for  export.  The  fact  that  there  is  a  tem- 
porary delay  in  actual  shipment  of  goods  is  immaterial. 

(Page  458,  September,  1916,  Bulletin.) 


Use  by  Commercial  Concerns. 

comn 
r  a  dis 
acceptance 


Large  commercial  concerns  are  initiating  the  practice 
of  allowing  a  discount  where  settlement  is  made  by  trade 


(Page    524,    October,    1916,    Bulletin.) 

37 


Business  Paper  and  Section  5200,  Revised  Statutes. 
The  Board  finds  it  necessary  to  adhere  to  its  estab- 
lished policy  of  not  making  any  general  ruling  on  the 
question  how  much  a  bank  may  invest  in  any  particular 
security.  It  held,  however,  that  if  a  firm  is  a  bona  fide 
owner  for  value  of  the  acceptances  of  any  particular  in- 
stitution and  such  acceptances  are  sold  to  or  discounted 
with  a  member  bank  the  acceptances  could  no  doubt  be 
treated  as  commercial  or  business  paper  actually  owned  by 
the  party  negotiating  them  and  would  therefore  be  ex- 
cepted from  the  limitations  of  Section  5200,  Revised 
Statutes.  Ruling  rests  upon  the  fact  that  paper  is  actually 
commercial  or  business  paper  owned  by  the  person  nego- 
tiating it.     (November  4,  1916.) 

(Page  678,  Deoember,   1916,  Bulletin.) 

Limitations  on  Amount   of  Acceptances   as   Imposed   by   Section    13    of 

Federal  Reserve  Act. 
In  any  case  where  shipping  documents  or  warehouse 
receipts  are  held  by  the  acceptor  the  10  per  cent,  limit  does 
not  apply;  so  also  in  any  case  where  the  acceptor  holds  a 
trust  receipt  which  does  not  enable  the  borrower  to  obtain 
the  goods  for  his  own  use,  the  10  per  cent,  limit  does  not 
apply;  but  in  any  case  where  the  bank  holds  merely  the 
ordinary  trust  receipt  which  gives  it  only  a  lien  on  the 
goods  in  the  hands  of  the  purchaser  or  on  their  proceeds, 
the  10  per  cent,  limit  should  apply. 

(Page  2SG,  April,    1917,  Bulletin.) 

Acceptances. 
A  bank  having  a  capital  and  surplus  of  $288,000  may, 
under  the  National  Bank  Act,  lend  to  a  customer  on  his 
o^vn  obligation  a  sum  not  to  exceed  $28,800  (10  per  cent, 
of  capital  and  surplus) .  The  bank  may,  however,  in  addi- 
tion to  such  loan,  discount  for  the  same  customer  ( although 
he  may  have  a  direct  line  of  credit  in  bank  up  to  the  10 
per  cent,  limit),  bills  of  exchange  drawn  against  actually 
existing  values,  or  commercial  or  business  paper  actually 
owned  by  him.  The  bank  may,  therefore,  legally  discount 
for  the  customer  bills  of  exchange  drawn  by  him  for  the 
purchase  price  of  commodities  sold,  and  accepted  by  the 
drawee;  or  it  may  discount  for  the  customer  the  note  of 

38 


the  purchaser  if  actually  owned  by  him,  without  reference 
to  the  10  per  cent,  limitations  prescribed  by  Section  5200. 
A  member  bank  acquiring  such  acceptance  or  notes  may 
rediscount  them  with  its  Federal  Reserve  Bank.  There 
is  no  limitation  upon  the  acceptances,  but  the  notes  would 
be  subject  to  the  limitations  prescribed  by  Section  13  of 
the  Federal  Reserve  Act;  and  the  Federal  Reserve  Bank 
cannot  discount  paper  bearing  the  signature  of  the  same 
borrower  in  an  amount  greater  than  10  per  cent,  of  the 
capital  and  surplus  of  the  member  bank  offering  such  pa- 
per. Bills  of  exchange  drawn  against  actually  existing 
values  and  accepted  by  the  drawee  within  a  reasonable  time 
after  the  shipment  of  the  goods  may  be  rediscounted  with 
the  Federal  Reserve  Bank  without  reference  to  the  limi- 
tations imposed  by  Section  13  of  the  Federal  Reserve  Act. 
I  am  informed  by  counsel  for  the  Comptroller  of  the  Cur- 
rency that  under  the  practice  followed  by  his  office  bills  or 
notes  which  are  renewed  at  maturity  are  not  to  be  treated 
by  the  person  negotiating  them  as  bills  drawn  against 
actually  existing  values  or  as  commercial  or  business 
paper,  and  that  renewals  are  therefore  subject  to  the  limi- 
tations of  Section  .5200. 

(Page  2S7,  April,   1917,  Bnlletin.) 


39 


OPEN  MARKET  TRANSACTIONS 


OPINIONS  OF  COUNSEL. 

Single  Name  Paper. 

Any  Federal  Reserve  Bank  may,  under  the  provisions 
of  Section  14  of  the  Federal  Reserve  Act,  purchase  accept- 
ances and  bills  of  exchange  of  certain  kinds  and  maturities 
in  the  open  market,  but  promissory  notes  as  distinguished 
from  bills  of  exchange,  whether  one  or  more  names,  are 
not  eligible  for  such  purchase. 

(Page    365,    November,    1915,    Bulletin.) 

Negotiability  of  Bills  and  Notes  Made  Payable  "in  Exchange." 

A  bill  or  note  made  payable  "in  exchange"  is  not  pay- 
able "in  money,"  and  is,  therefore,  not  negotiable.  Fed- 
eral Reserve  Banks  can  not  be  required  to  receive  checks 
and  drafts  drawn  in  this  manner  for  collection  or  credit. 

(Page   459,    September,   1916,   Bulletin.) 

Bill  of  Exchange  Drawn  by  the  Drawee. 

An  instrument  in  the  form  of  a  bill  of  exchange, 
drawn  by  an  agent  of  a  corporation  upon  the  corporation 
itself,  is  not  a  bill  of  exchange  such  as  is  eligible  for  pur- 
chase in  the  open  market  by  Federal  Reserve  Banks. 

(Page  462,   September,   1916,  Bnlletin.) 

INFORMAL    RULINGS. 

Open  Market  Transactions. 
As    to   open   market    transactions,    the    Board   has 
reached  the  conclusion  that  Congress  drew  a  distinction  in 
Sections  13  and  14  between  the  several  forms  of  commer- 
cial paper,  and  that  promissory  notes,  even  though  bearing 

40 


an  additional  indorsement,  must  be  regarded  as  excluded 
from  open  market  purchases  under  Section  14.  There  re- 
mains, then,  as  eligible  for  purchase  under  this  section 
"cable  transfers"  and  "bills  of  exchange"  of  two  kinds: 
(1)  So-called  foreign  bills  of  exchange,  and  (2)  domestic 
acceptances  drawn  by  one  party  on  another,  as  by  a  seller 
of  goods  upon  the  purchaser,  such  as  have  been  classified 
by  the  Board  as  trade  acceptances  either  accepted  or  not 
accepted  at  the  time  of  purchase. 

Decision  as  to  whether  banks  should  engage  in  such 
open  market  operations  rests  entirely  with  them  and  not 
with  the  Federal  Reserve  Board. 

The  Board  leaves  to  each  Federal  Reserve  Bank  the 
authority  granted  under  Section  14  with  respect  to  bills  of 
exchange  without  restricting  regulations. 

Banks  are  cautioned  that  no  bill  be  bought  in  the  open 
market  which,  even  if  indorsed  by  a  member  bank,  would 
be  ineligible  for  rediscount  under  Section  13. 

(Pase    360,    November,    1915,    Bulletin.) 


41 


PAPER  ELIGIBLE    FOR 
REDISCOUNT 

OPINIONS  OF  COUNSEL. 

Conditions  Attached  to  and  Affecting  Negotiability  of  Bills  of  Exchange 

and  Acceptances. 

A  bill  of  exchange,  in  order  to  be  negotiable,  must  be 
an  unconditional  order  to  pay,  on  demand  or  at  a  fixed  or 
determinable  future  time,  a  certain  sum  of  money  to  order 
or  to  bearer.  If  payment  is  dependent  upon  the  happen- 
ing of  a  certain  contingency,  the  bill  is  conditional  and 
non-negotiable.  If  payment  is  confined  to  the  proceeds  of 
a  particular  fund  and  is  not  cliargeable  to  the  general 
credit  of  the  drawer,  the  bill  is  conditional  and  non-ne- 
gotiable. 

A  general  acceptance  of  a  conditional  bill  or  a  condi- 
tional acceptance  of  an  unconditional  bill  makes  the  ac- 
ceptance a  conditional  one  and  destroys  its  negotiability. 

There  is  some  doubt  in  the  courts  whether  the  mere 
reference  to  a  particular  consignment  of  goods  makes  the 
bill  conditional,  some  courts  stating  that  it  is  merely  an 
indication  of  the  fund  out  of  which  the  drawee  is  to  re- 
imburse himself;  other  courts  holding  that  it  makes  the 
bill  conditional  because  limitmg  payment  to  the  proceeds 
of  the  particular  shipment  referred  to.  There  is  no  doubt, 
however,  that  a  reference,  in  general  terms,  on  the  face  of 
an  accepted  bill  to  the  fact  that  it  is  based  on  the  exporta- 
tion or  importation  of  goods,  would  not  make  it  condi- 
tional and  non-negotiable,  and  it  would  not,  therefore,  be 
ineligible  for  discount  under  the  provisions  of  Section  13 
of  the  Federal  Reserve  Act. 

(Page  21,  May,   1915,   Bulletin.) 
42 


Rediscount  of  Drafts  Payable  on  Condition. 
A  draft  made  "payable  on  arrival  of  car"  is  non-ne- 
gotiable, not  being  payable  at  a  determinable  future  time, 
and  is  therefore  ineligible  for  rediscount  by  a  Federal  Re- 
serve Bank. 

(Page    219,    August,    1»15,    Bulletin.) 

Negotiability  of  Bills  of  Exchange. 
The  negotiability  of  a  bill  of  exchange  is  not  affected 
by  provisions  which  waive  demand,  notice,  and  protest; 
which  waive  homestead  exemption  rights;  and  which  pro- 
vide for  the  costs  of  collection  and  attorney's  fees. 

(Pase   226,   May,    1916,    Bulletin.) 

Rediscount  of  the  Assignment  of  Open  Accounts. 
The  assignment  of  an  open  account  is  not  negotiable 
paper  and  is  not  eligible  for  rediscount  by  a  Federal  Re- 
serve Bank  under  the  terms  of  Section  13  of  the  Federal 
Reserve  Act. 

(Page    227,    3Iay,    1916,    Bulletin.) 

Limit  on  Rediscounts  of  Commercial  or  Business  Paper. 
While  a  member  bank  may  acquire  commercial  or 
business  paper  from  the  same  person  in  excess  of  10  per 
cent,  of  its  unimpaired  capital  and  surplus  (Sec.  5200, 
U.  S.  R.  S.),  its  Federal  Reserve  Bank  can  not  redis- 
count such  paper  bearing  the  signature  or  indorsement  of 
the  same  person  in  excess  of  that  amount  (Sec.  13,  Fed- 
eral Reserve  Act). 

Section  13,  Federal  Reserve  Act,  does  not  amend 
Section  5200,  United  States  Revised  Statutes. 

(Page   274,   Jnne,    1916,    Bulletin.) 

Agricultural  Products  or  Implements. 
The  purchase  or  sale  of  an  agricultural  product,  or  of 
implements  or  other  commodities  used  in  agriculture,  con- 
stitutes a  commercial  transaction.  Where  the  proceeds  of 
a  note  made  by  a  merchant  are  used  to  purchase  millet 
seed  to  be  later  retailed  or  sold,  such  a  note  can  not  be 
treated  as  one  given  for  an  agricultural  purpose  and  can 
not  be  discounted  by  a  Federal  Reserve  Bank  if  it  has  a 
maturity  at  time  of  discount  of  more  than  90  days. 

(Page   526,    Oetoljer,    1916,    Bulletin.) 

43 


Promissory  Notes  of  Member  Banks. 

Member  banks  in  procuring  advances  from  Federal 
Reserve  Banks  on  promissory  notes  must  secure  such  notes 
by  paper  eligible  for  rediscount  or  for  purchase  by  Fed- 
eral Reserve  Banks  or  by  bonds  or  notes  of  the  United 
States.     County  warrants  are  not  eligible  as  security. 

(Page   609,   NoTember,    1916,   Bulletin.) 


Advances  to  Member  Banks. 

Eligible  paper  pledged  as  security  for  a  promissory 
note  of  a  member  bank  on  which  an  advance  is  being  made 
by  a  Federal  Reserve  Bank  need  not  be  indorsed  by  such 
member  bank  if  such  eligible  paper  is  already  in  nego- 
tiable form. 

(Page  685,  December,   1916,   Bulletin.) 


Trade  Acceptances  Based  on  Advertising  Space. 

The  Federal  Reserve  Board  may  properly  rule  that 
a  draft  or  bill  of  exchange  drawn  by  the  seller  on  the  pur- 
chaser of  advertising  space  and  accepted  by  such  purchaser 
is  a  trade  acceptance. 

(Page   116,   Febrnary,    1917,   Bulletin.) 


Bills  of  Exchange  Drawn  against  Actually  Existing  Values. 

A  bill  of  exchange  discounted  before  acceptance  may 
be  said  to  be  drawn  against  actually  existing  values,  with- 
in the  meaning  of  Section  13  of  the  Federal  Reserve  Act, 
when  and  only  when  it  is  accompanied  by  shipping  docu- 
ments, warehouse  receipts,  or  other  papers  securing  title 
to  the  goods  sold.  An  accepted  bill  of  exchange,  unac- 
companied by  shipping  documents  or  other  such  papers, 
may  be  considered  as  drawn  against  actually  existing 
values  if  drawn  against  the  drawee  at  the  time  of,  or  within 
a  reasonable  time  after,  the  shipment  or  delivery  of  the 
goods  sold.  In  this  latter  case  there  must  be  reasonable 
grounds  to  believe  that  the  goods  are  in  existence  in  the 
hands  of  the  drawee  either  in  their  original  form  or  in  the 
shape  of  the  proceeds  of  their  sale. 

(Page   195,   March,    1917,    Bulletin.) 

44 


Discount  of  Paper  Secured  by  or  Issued  for  Purposes  of  Trading  in  Bonds 
or  Notes  of  the  United  States. 

Any  member  bank  may  rediscount  with  its  Federal 
Reserve  Bank  a  note,  draft,  or  bill  drawn  for  the  purpose 
of  carrying  or  trading  in  bonds  or  notes  of  the  United 
States,  and  may  also  procure  advances  from  its  Federal 
Reserve  Bank  on  its  own  promissory  note  secured  by  a 
deposit  of  or  pledge  of  bonds  or  notes  of  the  United 
States. 

(Page    197,    March,    1917,    Bnlletin.) 

Drafts  Paid  on  or  before  a  Certain  Date. 

Drafts  payable  "ninety  days  from  date  or  before  on 
five  days  after  demand  (i.  e.,  on  five  days'  notice)  by  the 
holder  hereof"  are  negotiable  and  eligible  for  discount  with 
a  Federal  Reserve  Bank. 

(Page  391,   April,   1917,   Bulletin.) 

INFORMAL   RULINGS 

Differential  as  to  Acceptance. 

While  a  very  decided  differential  may  be  inadvisable, 
there  is  no  objection  to  a  moderate  differential,  say  1/4  of 
1  per  cent.,  to  apply  between  member-bank  acceptances 
and  the  acceptances  of  large  non-member  institutions  well 
known  throughout  the  country  and  whose  acceptances  nec- 
essarily have  a  broad  market. 

(Page    38,    Janoary,    1917,    Bnlletin.) 


45 


AGRICULTURAL  PAPER 

INFORMAL    RULINGS. 

The  limitation  of  25  per  cent,  on  loans  for  agricul- 
tural purposes  or  based  on  live  stock  applies  only  to  jDaper 
having  maturity  in  excess  of  90  days. 

(Page    72,    June,    1915,    Bulletin.) 

Live  Stock  Includes  Beef  Cattle,  Horses,  and  Mules. 

The  term  "live  stock"  is  held  to  include  not  only  beef 
cattle,  but  also  horses  and  mules. 

(Page    72,    June,    1915,    Bulletin.) 

Notes  for  Fertilizer  Eligible. 
A  farmer's  six  months'  note  for  commercial  fertilizer, 
discounted  and  indorsed  by  a  member  bank,  is  agricultural 
paper  eligible  for  rediscount  with  the  Federal  Reserve 
Bank. 

(Page    75,   June,    1916,    Bulletin.) 

Cattle  Mortgages  Unnecessary. 
Mortgages  on  cattle  are  not  required,  and  the  ques- 
tion whether  paper  secured  by  cattle  is  self-liquidating  is 
a  legal  one  to  be  determined  at  the  Federal  Reserve  Bank. 

(Page    74,    June,    1915,    Bulletin.) 

The  Act  does  not  require  the  taking  of  chattel  mort- 
gages as  security  for  loans  based  on  agricultural  opera- 
tions. The  statement  of  the  member  bank  to  this  effect 
must  ordinarily  be  accepted.  The  direct,  primary  pur- 
pose of  the  loan  should  be  for  the  ordinary  operations  of 
agriculture.  Words  "based  on"  are  not  considered  syn- 
onymous with  "secured  by."  Agricultural  paper  need  not 
be  directly  secured  by  agricultural  products,  but  should 
be  genuinely  based  on  transactions  entered  upon  for 
agricultural  operations.  General  banking  prudence  and 
knowledge  should  be  applied. 

(Page    72,    June,    1915,    Bulletin.) 

46 


Note  of  Dealer  Not  Eligible. 

A  note  made  by  a  dealer  in  agricultural  implements  is 
not  agricultural  paper. 

(Page   312,   August,    1915,    Bnlletln.) 

Cattle,  a  Readily  Marketable  Commodity. 
Cattle  are  a  readily  marketable  commodity    and    a 
bankers'  acceptance  secured  by  a  chattel  mortgage  there- 
on is  eligible  for  rediscount  at  a  Federal  Reserve  Bank. 

(Page  65,  February,  1016,  Bulletin.) 

Notes  for  Farm  Tools  Eligible. 

Notes  of  farmers  or  consumers  given  for  the  pur- 
chase price  of  farm  tools,  agricultural  machinery,  or  other 
farm-operating  equipment  are  discountable  under  Section 
13  of  the  Federal  Reserve  Act,  which  provides  for  notes, 
bills,  or  drafts  drawn  or  issued  for  agricultural  purposes. 

Presentation  of  notes  of  farmers  or  consumers  for 
the  purchase  price  of  farm  tools  or  agricultural  machinery 
by  the  dealer,  with  his  indorsement  for  rediscount,  does  not 
change  their  classification  as  for  agricultural  purposes. 

(Page  67,  Febrnary,  1916,  Bulletin.) 

Notes  for  Dairy  Cattle  Eligible. 

Notes  signed  by  a  farmer,  the  proceeds  of  which  are 
used  for  the  purchase  of  cows  to  be  used  as  dairy  cattle, 
are  eligible  for  rediscount  at  the  discretion  of  the  Federal 
Reserve  Bank  notwithstanding  the  fact  that  the  cattle  are 
not  primarily  purchased  for  "breeding,  raising,  fattening, 
and  marketing  of  live  stock." 

(Page    112,   March,    1916,   Bulletin.) 

Exceptions  to  Section  5200. 

The  fact  that  a  note  or  draft  discounted  by  a  national 
bank  may  be  secured  by  cattle  would  not  of  itself  bring 
it  within  the  exceptions  to  Section  5200,  Revised  Statutes, 
unless  it  is  commercial  or  business  paper  actually  owned 
by  the  person  negotiating  the  same  or  unless  it  is  a  bill  of 
exchange  drawn  in  good  faith  against  actually  existing 
values. 

(Page  329,   July,   1916,  Bulletin.) 

47 


Amounts  Rediscounted. 

Amounts  of  cattle  paper  discounted  at  Federal  Re- 
serve Banks  are  not  available  without  special  report.  The 
banks  at  Dallas  and  Kansas  City  take  more  of  this  paper 
than  any  others. 

(Page  395,   Angnmt,   1916,   Bnlletln.) 

Cattle  for  Breeding,  Grazing,  or  Fattening,  as  Security. 

Loans  on  cattle  for  breeding,  grazing,  or  fattening 
may  be  made  under  the  classification  of  six  months'  agri- 
cultural paper  and  the  paper  may  be  rediscounted  by  a 
member  bank  at  its  Federal  Reserve  Bank. 

(Page   679,  December,   1916,  Bulletin.) 


48 


COMMODITY  PAPER 

Includes  Paper  of  Merchants  and  Others. 

"Commodity  paper"  includes  not  only  paper  originat- 
ing with  the  producer,  but  also  paper  of  merchants  and 
others  when  the  commodity  is  not  carried  for  speculative 
or  purely  investment  purposes. 

(Pase   307,   October,    1915,    Balletin.) 

Potatoes  Not  Non-perishable. 

Potatoes  are  not  a  non-perishable  product  and  are, 
therefore,  not  acceptable  as  security  for  commodity  loans. 

(Page  406,  December,   1915,   Bulletin.) 

Purchases  from  Member  Banks. 

Purchases  by  Federal  Reserve  Banks  from  member 
banks  of  commodity  loans  without  the  member  banks' 
indorsement  would  not  be  open  market  purchases,  be- 
cause such  commodity  loans  are  in  the  form  of  ordinary 
promissory  notes  or  one-name  paper. 

(Page  406,  December,   1915,   Bulletin.) 

Profits  of  Member  Banks. 

There  is  an  apparent  profit  to  a  member  bank  of  3 
per  cent,  on  a  transaction  in  commodity  paper  where  the 
loan  is  made  by  the  member  bank  at  6  per  cent,  and  the 
discount  rate  of  the  Federal  Reserve  Bank  is  3  per  cent. 

(Page  406,  December,   1915,   Bulletin.) 

Mercantile  Firms  Can  Not  Discount  with  Federal  Reserve  Banks. 

Federal  Reserve  Banks  can  not  discount  commodity 
paper  directly  for  mercantile  firms. 

(Page   113,   March,    1916,    Bulletin.) 

49 


INFORMAL   RULINGS 

AS  TO  PAPER 

OTHER    THAN 

AGRICULTURAL  OR  COMMODITY 

Paper  of  Finance  Companies  Ineligible. 
The  Board  holds  that  collateral  trust  notes  of  so-called 
finance  companies  should  not  be  accepted  by  Federal  Re- 
serve Banks  for  rediscount.     Such  a  transaction  is  not  a 
commercial  one. 

(Pase    72,   June,    1015,    Bulletin.) 

Direct  Notes  of  Non-member  Banks  Ineligible. 
Notes  of  non-member  banks,  if  direct,  can  not  be  re- 
discounted. 

(Pase   72,   Jane,    1916,    Bulletin.) 

Conditions  as  to  Cotlon-Miil  Paper. 
Banks  are  authorized  to  discount  cotton-mill  paper 
indorsed  by  member  banks  where  general  conditions  are 
satisfactory  and  statement  of  cotton  mill  shows  that  the 
plant  is  not  mortgaged  and  that  the  deficiencj^  between 
capital  and  plant  account  does  not  amount  to  more  than 
$5  per  spindle. 

(Page    73,    Jnne,    1915,    Bulletin.) 

Discount  of  Notes  Renewed. 
Renewals  differ,  and  banking  judgment  determines 
the  merits  of  each  particular  case.  Those  providing  work- 
ing capital  or  capital  to  finance  fixed  investments  are  not 
eligible  for  rediscount.  On  the  other  hand,  self-liquidat- 
ing paper,  even  though  the  transaction  which  gives  rise  to 
it  does  not  liquidate  itself  within  the  90-day  maturity, 
might  be  discounted  even  though  it  appears  to  be  renewal 

50 


paper.  Banks  should  not  enter  into  an  agreement  for  a 
renewal.  Care  should  be  exercised  in  examining  such 
paper  and  the  transactions  which  give  rise  to  it,  but 
mechanical  rules  should  not  be  allowed  to  take  the  place 
of  discriminating  banking  judgment. 

(Pase    74,   June.    1915,    Bulletin.) 

Undivided  Interests  Not  Security. 

An  undivided  interest  in  property  is  not  regarded  as 
advisable  security  for  paper  to  be  rediscounted. 

(PajKre    75,    June,    1915,    Bulletin.) 

Bills  Receivable  Satisfactory  Collateral. 

The  note  of  a  manufacturer  secured  by  his  bills  re- 
ceivable is  desirable  paper,  and  should  certainly  not  be 
debarred  as  a  collateral  trust  note.  When  issued  for  the 
purpose  of  carrying  collateral  for  a  speculative  purpose 
or  collateral  in  the  nature  of  stocks  and  bonds  other  than 
the  securities  of  the  United  States,  the  note  would  not  be 
eligible  for  rediscount. 

(Page  137,  July,  1915,  Bulletin.) 

Manufactured  Pig  Iron  Good  Security. 

The  note  of  a  furnace  company  secured  by  pig  iron 
manufactured  by  the  company  on  contract  for  delivery 
is  eligible  for  rediscount.  While  this  principle  generally 
holds  good,  each  case  should  be  carefully  scrutinized  that 
the  collateral  may  be  readily  marketable  goods. 

(Page    137,    July,    1915,    Bulletin.) 

Notes  of  Mule  and  Cattle  Dealers  Mercantile  Paper. 

Notes  made  by  mule  and  cattle  dealers  are  mercantile 
rather  than  agricultural  paper. 

(Page  313,   August,   1915,   Bulletin.) 

Financial  Statements. 

The  option  in  respect  to  waiving  requirement  that 
a  borrower's  financial  statement  shall  be  on  file  rests  with 
the  member  bank. 

(Page  213,  August,   1915,   Bulletin.) 

51 


Non-member  Bank  Rediscounts  Left  to  Federal  Reserve  Banks. 

The  question  whether  a  Federal  Reserve  Bank  may 
rediscount  for  non-member  banks  must  be  left  very  largely 
to  the  judgment  and  discretion  of  officers  of  each  Federal 
Reserve  Bank  and  to  the  determination  reached  by  them 
on  the  facts  in  each  case. 

(Pagre  213,  Angrnst,  1915,  Bulletin.) 

Crossties  and  Lumber  Good  Security. 

Bills  drawn  for  the  purpose  of  providing  funds  to 
export  crossties  and  lumber  to  Cuba  are  eligible  for  re- 
discount if  properly  indorsed  and  otherwise  conforming 
to  the  regulations  of  the  Federal  Reserve  Board.  Such 
paper,  it  is  presumed,  would  take  the  90-day  rate. 

(Page  268,  September,  1915,  Bulletin.) 

Collateral  Notes. 

Notes  secured  by  collateral  the  proceeds  of  which  are 
used  for  the  purchase  of  merchandise  in  the  due  course 
of  business  are  eligible  paper  for  rediscount.  The  fact 
that  notes  have  the  additional  security  of  collateral  in  no 
way  affects  their  eligibility. 

(Pase  268,   September,   1915,  Bnlletln.) 

The  fact  that  commercial  paper  has  the  additional 
security  of  collateral  in  no  way  affects  its  eligibility  for 
rediscount. 

(Pase  268,   September,   1915,   Bulletin.) 

Eligibility  of  Notes. 

Notes,  the  proceeds  of  which  have  been  used  or  are  to 
be  used  for  commercial  purposes,  otherwise  complying 
with  the  regulations,  are  eligible  for  rediscount. 

(Page  268,   September,   1915,   Bulletin.) 

Rebates  of  Discount. 

Rebates  of  discount  are  to  be  given  only  when  some 
good  reason  arises  for  such  action. 

(Page  308,   October,   1915,   Bulletin.) 

52 


Rediscounts  to  a  Reopened  Insolvent  Bank. 

The  Board  upholds  a  Federal  Reserve  Bank  in  de- 
clining to  give  assurance  to  the  receiver  of  an  insolvent 
member  bank  that  the  Federal  Reserve  Bank  will,  upon 
the  reopening  of  the  insolvent  bank,  rediscount  eligible 
paper  freely,  without  requiring  the  indorsement  of  di- 
rectors or  other  additional  security.  Offerings  should  be 
considered  upon  their  merits. 

(Page  66,  February,  1916,  Bulletin.) 

Section  5202,  Revised  Statutes. 

Under  Section  5202,  Revised  Statutes,  a  national 
bank  may  not  borrow  as  bills  payable  in  excess  of  its  cap- 
ital stock.  Under  the  Federal  Reserve  Act  it  may  redis- 
count actual  items  of  paper  in  its  possession  to  any  amount 
in  the  discretion  of  the  Federal  Reserve  Bank  of  its  dis- 
trict. 

(Page   112,   March,   1916,  Bulletin.) 

Limit  on  Cotton-Mill  Paper. 

No  national  bank  or  member  bank  could  discount  an 
aggregate  of  more  than  10  per  cent,  of  its  capital  and 
surplus  in  the  notes  of  a  cotton  broker  purchasing  cotton 
for  various  mills  and  financing  the  same  with  his  note  se- 
cured by  warehouse  receipt  of  the  mill,  indorsed  in  blank 
for  cotton  stored  in  his  own  name  and  insured,  to  sell  to 
the  mill  for  a  specified  amount  to  be  paid  at  a  stated 
time. 

(Page  113,  Marcb,   1916,  Bulletin.) 

Limit  of  10  Per  Cent,  to  One  Maker  or  Indorser. 

If  any  particular  paper  presented  by  a  member  bank 
to  a  Federal  Reserve  Bank  for  rediscount,  singly  or  added 
to  the  paper  of  the  same  makers  or  indorsers  which  the 
Federal  Reserve  Bank  has  already  rediscounted  for  said 
member  bank,  amounts  to  a  total  of  more  than  10  per 
cent,  of  the  unimpaired  capital  and  surplus  of  that  bank, 
the  Federal  Reserve  Bank  has  no  authority  for  such  re- 
discount. 

(Page  224,  Slay,  1916,  Bulletin.) 

53 


Loans  Not  Made  Directly  to  Individuals. 

Federal  Reserve  Banks  do  not  make  loans  directly 
to  individuals,  but  rediscount  the  paper  of  member  banks 
which  include  all  national  banks  and  such  State  banks  as 
may  have  joined  the  Federal  Reserve  System. 

(Pagre  272,  June,  1916,  Bulletin.) 

Rediscounts  Are  for  Face  Value. 

Paper  of  member  banks  is  rediscounted  by  Federal 
Reserve  Banks  for  its  face  value  and  without  compensa- 
tion. 

(Page  272,  Jane,  1916,  Bnlletln.) 

Notes  "on  or  before"  Eligible. 

Notes  payable  "on  or  before"  a  certain  date  are  eli- 
gible for  rediscount  with  Federal  Reserve  Banks  provided 
they  conform  to  the  law  and  regulations  of  the  Board  in 
other  respects. 

(Page  394,   Aagnst,   1916,   Bulletin.) 

Proceeds  of  a  Note. 

Mode  of  determining  proceeds  of  a  note  discounted 
by  Federal  Reserve  Bank. 

(Pagre   456,    September,    1916,    Bulletin.) 

Ten  Per  Cent.  Limitation  Does  Not  Apply  to  Bills  of  Exchange. 

The  aggregate  of  eligible  notes  and  bills  bearing  the 
signature  or  indorsement  of  any  one  person,  company, 
firm,  or  corporation  rediscounted  by  a  Federal  Reserve 
Bank  for  a  non-member  bank  shall  at  no  time  exceed  10 
per  cent,  of  the  unimpaired  capital  and  surplus  of  such 
member  bank.  This  restriction  does  not  apply  to  bills  of 
exchange  drawn  in  good  faith  against  actually  existing 
values. 

(Page  457,  September,  1916,  Bulletin.) 

No  Limit  on  Rediscounts  of  Commercial  Paper  for  Any  One  Bank. 

The  law  places  no  limitation  upon  the  amount  of  com- 
mercial paper  which  a  member  bank  may  rediscount  with 
a  Federal  Reserve  Bank,  but  leaves  this  to  the  judgment 
of  the  officers  of  the  Federal  Reserve  Bank. 

(Pagre  457,  September,  1916,  Bulletin.) 

54 


"Staples"  Defined. 

"Staples"  in  the  meaning  of  Regulation  Q,  series  of 
1915,  include  manufactured  goods  as  well  as  raw  mater- 
ials, provided  the  goods  are  non-perishable  and  have  a 
wide  ready  market.  This  is  held  to  include  cotton  yarns 
and  flour. 

(Page  533,  October,  1916,  Balletin.) 

Indorsement  on  Waiver  of  Demand,  Notice,  and  Protest. 

Simple  written  indorsement  is  considered  sufficient  in 
connection  with  a  waiver  of  demand,  notice,  and  protest 
as  to  its  own  indorsement  exclusively  on  the  part  of  a 
member  bank. 

(Page    524,    October,    1016,    Bulletin.) 

Government  Does  Not  Fix  Interest  Rate  of  Member  Bank. 

The  Government  does  not  fix  the  rate  of  interest 
which  national  banks  may  charge  upon  loans,  but  does 
approve  the  rate  of  rediscount  at  which  paper  may  be 
rediscounted  at  Federal  Reserve  Banks. 

(Page  679,  December,   1916,  Balletin.) 

Acceptances  against  Bullion. 

Gold  bars  may  be  properly  considered  as  goods,  and 
accordingly  60-day  bills  when  accepted  by  banks  and 
bankers  against  such  a  shipment  would  be  eligible  for 
purchase  by  Federal  Reserve  Banks  as  based  upon  or 
involving  the  exportation  of  goods. 

(Pase   29,    January,    1917,    Bulletin.) 

Bills  Drawn  against  Coin. 

Gold  coin  is  "goods"  within  the  meaning  of  Section 
13  of  the  Federal  Reserve  Act,  and,  therefore,  a 
bill  of  exchange  drawn  to  finance  a  shipment  of  gold  coin 
from  this  country  is  eligible  for  purchase  by  a  Federal 
Reserve  Bank  if  otherwise  in  conformity  with  the  pro- 
visions of  the  law  and  the  regulations  of  the  Federal  Re- 
serve Board. 

(Pagre   29,    January,    1917,    Bulletin.) 

55 


ACCEPTANCES 


tFrom  Federal  Reserve  Bulletin,  July  1,  1917] 


Acceptance*  bought  tn  open  market  and  held  by  Federal  Reserve  Banks  at  per  schedules  on  file  with  the  Federal  Reserve  Board 
on  dates  specified,  distributed  by  classes  of  accepting  institutions. 


Banker's  acceptances. 


Nonmem- 
ber trust 
companies. 


Nonmem- 
ber  State 
banks. 


Foreign 

branches 
and  agen- 


Trade  ac- 
ceptances 
bought  in 

open 
market. 


Feb.K.. 
Apr.  5... 
T&yS... 
June  7... 
July3... 
Aug.  2... 
Sept.  6.. 
Oct.  4... 
Nov.  1... 
Dec.  6.., 


Jan.  3... 
Feb.  7.. 
Mar.  6.. 
Apr.  3.. 
Mayl.. 
JtmeS.. 
Julys.. 
Aug.  7.. 
Sept.  4.. 
Oct.  2... 
Not.  6.. 
Dec.  4.. 


Jan.  1..., 

Feb. 5... 
Mar.  5... 
Apr.  2... 
May7... 
May  14.. 
M8y21.. 
May  28.. 
June  4... 
June  11.. 
June  18.. 


*93,000 
3,653,000 
5,038,000 
6,242,000 
4,342,000 
5,350,000 
6,087,000 
9,000,000 
8,477,000 
12,311,000 


16,494,000 
16,681,000 
17,152,000 
21,000,000 
24,875,000 
24,680,000 
32,989,000 
39,695,000 
41,413,000 
37,798,000 
37,770,000 
47,748,000 


66,8a3,000 
50,361,000 
53, 2S.S,  000 
43,979,000 
49,192,000 
.56, 2-^4, 000 
59,105,000 
62,986,000 
69,:K2,000 
81,196,000 
103,314,000 


820,000 
189,000 
516,000 
287,000 
407,000 
305,000 
898,000 
331,000 
172,000 


160,000 
876,000 
670,000 
573,000 
400,000 
029,000 
921,000 
060,000 
356,000 
782,000 
474,000 
232,000 


625,000 
611,000 
518,000 
323,000 
650,000 
383,000 
316,000 
441,000 
611,000 
043,000 
776,000 


110,000 
10,000 
10,000 


20,000 
20,000 
132,000 
253,000 
275,000 


362,000 
336,000 
408,000 
473,000 
585,000 
644,000 
471,000 
738,000 
728,000 
712,000 
1,014,000 
1,630,000 


1,502,000 
972,000 

1,090,000 
659,000 
238,000 
38.5,000 
320,000 
825,000 
684,000 
946,000 

l,296,t)!» 


(110,000 
110,000 
192,000 
161,000 
352,000 
472,000 
343,000 


822,000 
1,466,000 
1,781,000 
3,262,000 
3,430,000 
7,007,000 
11,830,000 
13,940,000 
12,491,000 
9,944,000 
12,147,000 
16,069,000 


18,224,000 
13,775,000 
20,581,000 
18,830,000 
19,177,000 
18,917,000 
19,822,000 
19,912,000 
21,077,000 
22,604,000 
23,880,000 


$140,000 
354,000 
200,000 
94,000 
117,000 
136,000 
235,000 
239,000 
239,000 
1,801,0C« 


1,834,0 
1,373,0 
1,265,0 


23,838,000 
25,349,000 
28,041,000 
38,308,000 
44,290,000 
49,360,000 
64,211,000 
73,433,000 
74,986,000 
70,238,000 
80,405,000 
98,679,003 

121,164,000 
88,7,W,000 
107,837,000 
82,028,000 
88,349,000 
100,096,000 
102,699,000 
107,099,000 
118,773,000 


t489,000 
462,000 
722,000 
1,477,000 
2,208,000 
3,422,000 
4,225,000 
3,673,000 
2,306,000 
2,378,000 
4,487,000 


4,536,000 
4,041,000 
2,635,000 
1, 144. 000 
1,679,000 
1,936,000 
3,027,000 
2,727,000 
3,022,000 
3,723,000 
3,611,000 


199,000 

11,693,000 
13,347,000 
9,960,000 
9,770,000 
11,120,000 
12,884,000 
14,373,000 
13,266,000 
18,164,000 

23,838,000 
25,838,000 
28,503,OM 
89,030,000 
45,767,000 
61,668,000 
67,633,000 
77,668,000 
78,699,000 
72,642,000 
82,783,000 
103,166,000 


125,739,000 
93,800,000 
110,366,000 
33,170,000 
90,C2S,000 
102,082,000 
106,730,000 
109,898,000 

ui,7«s,aoo 

140,761,000 
172,168,000 


56 


Amounu  of  bilU  discounted  and  acceptances  and  warrants  bought  by  each  Federal  Reserve  Bank  during  May,  tSn, 

distributed  by  maturities. 


IJ-day  matUTltlas. 


^'^J^      Warrants.       Total, 


30-da7  maturities. 


Boston 

Neir  York 

PbUsdslpbia.. 

Clevelana 

Riohmond..... 

Atlaots 

Chicago 

8t.  Looij 

Minneapolis... 
Kansas  City... 

Dallas 

San  Fianolsoo. 


(9,403,345 
e,201,W7 

18,545,006 
4,410,331 

20,353,342 
1,3^833 
2,477^450 
2,243,M 
1,011,110 
2,931,827 
841,206 
50,254 


73,603 
55,000 
500,000 
86,205 


110,581,129 
6,968,287 
13,545,006 
4,416,331 
20,426  945 
1,447,853 
2,977,450 
2,330,150 
1,011,110 
2,931,827 
841,205 
238,506 


1423,929 
40,873 
1,283,516 
175,775 
935,616 
421,469 
258,174 
691,898 
220,678 
344,136 
64,580 
114,823 


tl,  131, 498 

3,491,961 

1,601,582 

235,922 

2  088,000 

321,600 

255,548 

219,000 

235,000 


11,560,427 

3,632,834 

2,785,098 

411,697 

3,021,616 

763,469 

613,720 

910,898 

455,678 

344,136 

94,580 

191,937 


69,958,620 


60^1a7  mattultles. 


9(Ma7  matorltles. 


Boston 

New  York 

Philadelphia... 

Cleveland 

Rlc^ond 

Atlanta 

Chicago 

St.  Louis.. 

Uinneapolls... 
Kansas  City... 

Dallas 

San  Frandsoo. 


(445,623 

164,070 

338,665 

161,618 

1,621,738 

753,648 

ll»,024 

1,423,881 

1,553,648 

352,915 

427,308 

132,380 


(1, 120, 837 
1,248,268 
1,142,411 
1,152,003 
1,241,363 

568,862 
5,003.182 
1,224,405 

145,043 
1,387,146 


(1,572,' 
1,412,! 
l,4S0,i 
l,313,f 
2,863,1 
1.324,( 
5,202,; 
2,648,; 
1,700,( 
1,740,( 


(6,026,284 
16,5*4,187 
2,507,687 
5,660,101 

462,646 

238,828 
6,304,037 
2,570,403 

571,006 
2,121,033 

350,116 
1,542,439 


(6,960,618 
16,722,670 
2,776,111 
5,832,444 
2,203,893 
605,712 
5,453,550 
4,122,009 
1,037,497 
2,321,811 
660,438 
1,668,434 


7,576,418 


6,424,188  43,938,359 


Over  90<lay  maturities. 


Boston 

New  York 

Philadelphia... 

Cleveland 

Richmond 

Atlanta 

Chicago 

St.  Louis 

Minneapolis... 
Kansas  City... 

Dallas 

Ssa  Francisco.. 


9,529 


424,852 
268,066 
130,908 

37,742 
538,469 
407,102 
629,674 

27,148 


(845,408 
1,748,849 
252,879 
380,013 
10,270 
33,850 


(50,437 
29,219 
10,225 


424,437 


(845,603 
6,799,288 
291,627 
390,238 
435,122 
301,916 
130,908 
462, 179 
538,469 
712,045 
668,474 
27,148 


(10,217,813 
28,839,605 
5, 404, 559 
7, 428, 129 
3,873,881 
1,213,040 
11,062,765 
4,524,450 
951,049 
3,814,032 
573,090 
4,681,033 


(50,437 
29,219 
12,265 


1,620,242 
i,  435, 315 
>,  878, 818 
!,  384, 331 
1,960,678 
1,447,965 
1,277,834 
1,473,522 
1,743,445 
1,050,880 
1,848,179 


52.6 
18.5 
79.0 
39.8 
86.6 
72.0 
22.6 
58. 8 
79.0 
53.9 
70.8 


47.4 
81.3 
20.9 
60.1 
13.4 
27.3 
77.6 
43.2 
20.1 
48.1 
20.2 
91.2 


100.0 
100.0 
100.0 
100. 0 
100.0 
100.0 
100.0 
100. 0 
100. 0 
100.0 
100.0 
100.0 


2,473,780 


11,602,020  91,413,473  82,583,496 


loao 


57 


Maturities  of  diicounts,  acceptances,  and  municipal  warrants  held  by  the.Fedeml  Reserve  Banks  on.  Friday,  May  Z5,  1917. 
[In  thousands  of  dollars;  i.  e.,  000  emitted.] 


1  to  16  diys. 

16  to  30  days. 

Basics. 

Bills  dis- 
counted. 

Accept- 
ancos 
bought. 

Lfonidpal 
warrants. 

Total. 

Bilis  dis- 
counted. 

Accept- 
ances 
bought. 

Municipal 
warrants. 

Total. 

1,939 

6,872 
2,788 
4,015 
1,211 
2,020 
1,680 
1,603 
1,745 
934 
299 

3,720 

4,430 

2,245 

887 

2,520 

809 

1,200 

609 

630 

136 

96 

1,207 

127 
3,647 
1,013 
1,274 

5,783 
«,428 

lo.iSo 

4,949 
6,535 
2,021 
4,492 
2,766 
2,410 
1,906 
1,467 
1,809 

335 
80 
909 
100 
1,363 
537 
606 
474 
824 
281 
643 
211 

744 

2,599 

3,707 

1,239 

1,160 

633 

1,190 

412 

362 

101 

101 

3,759 

1,079 

1,016 
356 

3,fi95 

4,870 

1,695 

^i  >i       fi 

2,523 

1 
1,272 
577 
177 
25 
437 
303 

30 
762 
254 

1200 

Rt  T^ii^*  *  * 

1,140 

355 

61 
30.'> 

'737 

Ban  Francisco 

25,348 

18,495 

8,863 

62,698 
31.1 

6,363 


10,007 

3,383 

26,7S3 

°* 

16.1 

31  to  60  days. 

81  to  90  days. 

Banks. 

Bills 
discounted. 

Accept- 
ances 
bought. 

Uanidpal 
warrants. 

Total 

BUIs 
discounted. 

Accept- 
ances 
bought. 

Municipal 
warrants. 

Total 

595 

163 

363 

140 

2,037 

962 

230 

1,175 

2,177 

417 

999 

188 

2,842 
15,683 
5,014 
3,754 
1,772 

480 
2,984 
2,196 

777 
1,472 

412 
3,954 

3,437 
18,100 
5,377 
3,899 
3,809 
1,442 
3,264 
3,471 
2,954 
1,889 
1,381 
4,142 

597 
63 
147 
LT 
973 
239 
172 
507 
3S8 
158 
264 
102 

4,708 

12,062 

1,848 

4,414 

170 

243 

3,755 

1,885 

507 

1,379 

271 

298 

5,305 

254 

112 
152 
217 

16 

12,237 

2,147 

6 

4,643 

1,168 

4S3 

^1         rt *" 

152 
112 

4,079 

loe 

2,504 

895 

51 
20 
203 

1,585 

546 

San  Francisco 

601 

9,466 

41,340 

369 

51,165 
So.  2 

3,612 

31,635 

1,034 

36,181 

^ 

Oyer  90  days. 

Total 

Percentages. 

Banks. 

Bills 
dis- 
count- 
ed. 

Aocept- 
bought. 

Muni- 
cipal 
war- 
rants. 

Total 

Bills 
dis- 
count- 
ed. 

Accept 
bought 

Muni- 
'    cipal 

war- 
■  rants. 

Total. 

BUIs 
dis- 
count- 
ed. 

Accept- 
anoes 
bought. 

Muni- 
cipal 

rants. 

Amoost. 

Per 
cent. 

Total 

3,403 
651 
8,296 
3,049 
8,772 
3,328 
3,235 
3,806 
6,517 
2,967 
3,564 
839 

12,  OM 

34,780 
12,814 
10,294 
6,622 
2,165 
9,129 
6,102 
2,279 
3,085 
8S0 
9,216 

127 

5,029 

1,422 

2,896 

IS 

31 

2,189 

1,043 

177 

431 

608 

811 

15,604 
40,460 
22,532 
19,233 
14,409 
6,624 
14,650 
9,951 
S,07O 
6,483 
4,9S2 
10,866 

9.2 
23.7 
13.2 
9.5 
8.6 
3.6 
8.6 
6.9 
4.7 
3.8 
2.9 
6.4 

22.2 
1.6 

36.8 
18.7 
60.8 
60.2 
22.2 
38.2 
69.6 
45.7 
72.0 
7.7 

77.0 
85.9 
56.9 
63.4 
39.1 
39.2 
62.7 
51.3 
28.2 
47.9 
17.8 
84.8 

0.8 
12.5 

6.3 
17.9 
.1 
.6 
15.1 
10.5 

2.2 

9.7 
10.2 

7.5 

100.0 

loao 

S 

9 

3H 

379 

157 

70 
625 
366 
764 

39 

3 

1,043 

8 

1,062 

384 

379 

157 

70 
626 
366 
764 

39 

100.0 

loao 

Richmond ' 

Atlamni       

100. 0 

rhi^po 

100. 0 

100.0 

100.  e 

Total 

2,798 

1,046 

3,844 
2.3 

47,587 

107,377 

14,675 

169,639 

100.0 

23.1 

63.2 

8.7 

100.0 

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58 


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6,7 
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127,7 
31,7 
35,5 
96,7 
114,0 
149,6 
10,0 

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59 


Total  investment  operatumt,  exclusive  of  purchases  of  United  Slates  certificates  of  indebtedness,  of  each  Federal  Reserve 
Bank  during  the  months  of  May,  1917  and  1916,  and  the  Jive  months  ending  May,  1917  and  1916. 


Federal  Reserve  Banks. 


Boston Jll,  302, 4 

New  York fl,646,2 

Philadelphia 20,446,0 

Cleveland 4,933,9 

Richmond 25,076,7 

Atlanta  (including  New  Orleans  branch) 3, 202, 9 

Chicago 3,215,0 

St.  Louis 6,949,0 

Minneapolis 3, 792, 3 

Kansas  City 4,23«,8 

Dallas.. I    2,273,0 

flan,Francisco 


Bills 

discounted 

for  member 

banks. 


Total  May,  1917 

Total  May,  1918 

Total  5  months  ending  May,  1917. 
Total  S  months  ending  May,  1916. 


91,413,473 
11,105,600 
208,910,430 
50,883,900 


Bills  bought  in  open  market. 


Bankers'  ac-   Trade  ac- 
ceptances,   ceptances. 


»10,217,l 
28,441,: 
6,3S5,i 


1,218,0 
10,949,4 
4,624,4 

951,0 
3,814,0 

673,0 
2,240,5 


79,399,605 
20,990,900 
237,260,403 
82,219,300 


{397,846 
48,993 
194,160 


3,188,691 

920,600 

6,046,676 

3,(>!9,700 


»10,217,813 
28,839,605 
5,404,559 
7,428,129 
3,873,881 
1,218,040 
11,082,765 
4,624,450 
951,049 
3,814,032 
673,090 
4,681,083 


82,688,496 
21,911,600 
243,307,084 
85,348,000 


Municipal  warrants  bought. 


76,656 
6,774,800 
14,364,057 
46,197,000 


State.     All  other.      Total. 


2,187,300 

2,040 

2,650,200 


43,265 
17,100 
647,296 
150,100 


WO,  437 
29,219 
12,265 


118,921 
8,979,200 
15,013,392 
50,023,300 


Federal  Reserve  Banks. 


United  States  bonds  and  Treasury  notes. 


Boston 

New  York. 

Philadelphia 

Cleveland 

Richmond... 

Atlanta  (including  New  Orleans  branch). 

Chicago 

St.  I.ouis 

Minneapolis 

Kansas  City 

Dallas 

San  Francisco 


«ao,ooo 
"mIooo' 


121,520,242 
35,435,315 
25,878,818 
12,364,331 
28,950,676 
4,447,065 
14,277,834 
10,473,522 
4,746,446 
8,100,880 
2,846,179 
5, 183,683 


1,242,100 
1,131,300 
1,562,000 
1,702,600 
1,798,200 
:,  262, 000 
,588,300 
1,534,600 
1,603,700 
!,  193, 200 
,813,000 
1,868,700 


12.9 
16. 8 
13.6 


Total  May,  1917 

Total  May,  1916 , 

Total  5  months  ending  May,  1917. . 
Total  5  months  ending  May,  1910. 


100,000 
5,608,100 
14,047,200 
33,621,100 


4,000 
225,600 
118,440 
1,187,830 


J280,00O 

25,250 

4,108,000 


104,000 
6,113,600 
17,748,890 
40,966,930 


174,224,890 
484)979]  iw 


48,199,700 
227,'222,'i86 


United  States  bonds,  notes,  and  certificates  of  indebtedness  held  by  each  Federal  Reserve  Bank  on  May  SI,  1917,  distributed 

by  maturities. 


United  States  bonds  with  drculation  privilege. 

United  States  securities  without  circulation  privilege. 

Bank. 

2  per  cent 
consols 
of  1930. 

2  per  cent 
P«i-!am£s 
of  19;»-38. 

3  percent 

loan 

ol  1913. 

4  per  cent 
loan 
of  1925. 

Certificates  of  indebt- 
edness. 

3  percent 
conversion 

bonds 
o(  194(>-47. 

3  per  cent 
i-year 
notes. 

3peroent 
Toan 
011961. 

Total. 

2  percent. 

3  and  3i  per 
cent. 

t750 
fid 

(3,000,000 
20,000,000 
3,600,000 
3,500,000 
2,000,000 
1,600,000 
5,000,000 
2,600,000 
2,000,000 
2,500,000 
2,000,000 
2,J00,000 

$529,000 

1,256,600 

649,200 

414,800 

$2,194,000 
2,788,000 
2,648,000 
1,865,000 
1,969,000 
1,491,000 
2,985,000 
1,444,000 
1,340,003 
1,784,000 
1,430,000 
1,600,000 

$6,723,760 

150,000 

$378,000 

24,471,660 

$100 
497,200 
237,000 
21,000 
367,300 

6,697,300 

6,400 

915, 100 

«0,600 

l,8()2,60O 

100 

323,050 

7,1M,8M 

2.450,900 

2, 428, 750 

3,586,660 

«2, 358,200 

ll,?,09,16O 

5,121,100 

1,093,000 
554,000 



10,300 

427,400 

1,153,300 

114,800 

838,600 

1,233,600 

4,765,900 

2,681,000 
1,080,000 
1,190,180 

i, 768, 666 

$400 

16,646,600 

6,177,400 

16,260 
25,240 
281,500 

206,256 
825,000 

500 

5,1*7,040 

5,000 

905,000 

1,514,000 

J3,U0,69a 

8,301,000 

7,073,750 

Total 

15,7&t,050 

1,412,600 

7,493,740 

5,168,450 

50,000,000 

4,479,000 

6,526,400 

23,338,000 

800 

U4,203,140 

Total  United  States  bonds  with  circulation  privilege,  $2S,858,»tO.   Total  United  States  securities  without  dtculatian  privilege,  $8(^44,300. 


60 


Bilb  diicounted  during  the  month  of  May,  1917,  and  1916,  and  the  Jive  mcmtht  ending  May,  1917,  and  1916,  distributed  by 

clauet. 


Boston 

New  York 

Pblladslphla... 

Cleveland 

Richmond 

Atlanta. 

Chicago. 

8t.  Louis 

Uioneapolis... 
Kansas  City... 

Dallas 

San  Fmnclsco. 


Total  May,  1917 

Total  May,  1916 

Total  January-May,  1917.. 
Total  January-May,  1916.. 


Collateral 

notes 
seoiired  by 


140,000 
40,000 

880,000 

660,000 
80,000 
10,000 

413,000 


576,000 
!,  401, 000 
225,000 


Collateral 

notes 
secured  by 

clal  paper. 


t2, 990, 000 

2,037,000 

14,3-19,000 

2,170,000 

19,289,560 

914,000 

1,230,000 

1,620,000 

300,325 

270,000 

696,205 


$636,388 
117,000 
25,758 
28,664 
306,146 
196,334 
43,387 
414,443 


86,126 


Conjmod- 
ity  paper. 


15,000 
'131,667' 


864,121 

899,400 

4,979,438 

7,647,400 


t7, 746, 0*1 
4,351,273 
6,190,282 
2,175,373 
4,963,679 
1,834,657 
1,528,682 
3,999,624 
2,917,071 
1,348,055 
1,442,467 
434,466 


37,031,670 
9,997,700 
97,303,801 
41,708,900 


tll,302,429 
6,545,273 

20,445,040 
4,923,937 

25,076,796 
3,203,936 
3,216,069 
5,949,072 
3,792,396 
4,236,848 
2,273,089 
450,600 


91,413,473 
11,195,400 
208,910,430 
60,883,900 


Amounts  of  discounted  paper,  including  member  banks'  collateral  notes,  held  by  each  Federal  resenie  ban}:  on  the  last 
Friday  in  May,  1917,  distributed  by  classes. 


Banks. 

Agricul- 
tural 
paper. 

Live- 
stock 
paper. 

Commer- 
cial and 
Industrial 
paper. 

Member 
banks' 

collateral 
notes. 

Total. 

Banks. 

Agricul- 
tural 
paper. 

Live- 
stock 
paper. 

Commer- 
cial and 
industrial 
paper. 

Member 
banks' 

collateral 
notes. 

Total. 

$2,797,699 
365,181 
2,038,625 
624,274 
8,806,671 
2, 167; 450 
1,901,609 
2,424,751 

$666,000 

227,000 

6,123,000 

2,370,000 

2,307,050 

684,000 

733,000 

1,020,000 

$3,462,669 
661,270 
8,2»J,S»4 
3,048,760 
8,771,715 
3,328,384 
3,235,026 
3,803,136 

Minneapolis 

Kansas  City 

Dallas 

$477,363 
224,452 
703,358 
131,027 

$635,392 

673,091 

1,341,570 

45,746 

$4,118,999 

674,337 

1,085,060 

662,603 

$385,326 

1,496,000 

436,000 

$5,617,079 

2,966,880 

3,664,978 

839,276 

New  York 

$69,089 

Philadelphia. 

134,269 
29,140 
654,664 
364,964 
68?;  827 
166,207 

126,346 
3,330 
221,970 
12,690 
195,178 

San  Francisco 

Total 

3,542,350 
7.4 

3,164,213 
6.6 

24,547,149 
61.6 

16,344,375 
34.4 

47,688,087 

Distribution,  by  sizes,  of  bills  bought  in  open  market  by  all  Federal  Reserve  Banks  during  May,  1917,  and  the  five  months 

ending  May,  1917  and  1916. 


To  $5,000. 

To  $10,000. 

To  $25,000. 

To  $50,000. 

To  $100,000. 

Over  $100,000. 

Total. 

Acceptances  hoogbt  In 
open  market. 

1 

i 

1 

s 

i 

o 

1 

S 

s 

i 

1 

a 

1 

1 

•< 

S 

1 

5 

1 

1 

Bankers'  acceptances 

Trade  acceptances 

1,274 
31 

$3,480,477 
90,907 

862 

38 

$$,728,251 
296,502 

1,644 
36 

$27,264,419 
670,606 

428 
14 

$18,193,882 
487,884 

172 
4 

$15,127,079 
250,424 

42 

4 

$8,605,617 
1,492,568 

4,317 
127 

■$79,399,605 
'3,188,891 

96.1 
3.9 

Total,  May,  1917 

1,306 

3,571,384 
4.3 

1,689,086 

876,506 

2,175,639 

1,023,210 

9,235,825 

4, 138, 784 

890 

"270 
175 
777 
483 

2,595 

1,113 

7,024,763 
8.5 
2,147,380 
1.381,029 
8,324,018 
1,706,069 

18,683,249 

9,072,806 

1,580 

"647 

363 

1,248 

30O 

4,138 

1,394 

27, 835, 026' 
tH^     33.8 
13,231,092 
6,976,406 
22,367  962 
6,238,206 

75,648,691 

25,621,025 

442 
"257 

18,681,746 

22.7 

11.003.120 

181 

86 
180 
48 

5S2 

194 

16,377,503 

18.4 

7,155,097 

6,801,912 

15,273,48! 
3,S9I,515 

48,49^,508 

16,463,221 

46 

"38 
25 
49 
11 

169 

71 

10,098,085 
12  3 
6,186,816 
4,930,660 
8,012,105 
1,859,763 

31,087,434 

14,660,078 

4,444 

82,688,496 

ioft'o 

748 
389 
819 
390 

3,651 

1  I'n 

2,047 
1,209 
3,474 
1,384 

12,558 

4,532 

41,312,591 
28,151,638 
70,637,179 
20,617,180 

243,307,084 

85,347,977 

171      7, 1S5, 126 
401    16.483.974 

January,  1917 

Total,  5  months  ending 

May,  1917 

Total,  6  months  ending 
May,  1916 

152 

1,423 

407 

6,898,412 
60,252,377 
15,387,063 

' 

*  01  the  above  amount,  bankera*  acceptaneea  totaling  $71,S5S,468  were  based  on  Imports  and  exports  and  J7,54l,137  on  domestic  tnd^  ttzna- 
fictions, 

•  AU  of  the  above  trade  acceptances  were  drawn  al>road  on  importers  in  the  United  States  and  indorsed  by  foreign  bank.^. 


61 


INDEX 

PAGE 

ACCEPTANCE — :Must  be  accepted  by  drawee 37 

Presentment  of  bills   for 33 

ACCEPTANXES— Against  Bullion    1-2,  55 

Bankers'     ^ 

Definition    1^ 

General   regulations   covering   rediscounts 17 

Secured  by  bill  of  sale   33 

Special  regulations  covering  rediscounts IS 

Based  on  imports  and  exports  H 

Differential  as  to   45 

Discount  of,  indorsed  by  member  banks  in  another  district 31 

Discount  of  renevi'als  of   33 

Dollar  exchange,  to  create 9 

Domestic    ^j  4^1 

Drawn  to  finance  the  future  shipment  of  goods 11 

Eligibility  of   34 

For  investment  by  a  member  bank 13 

Informal  Rulings  of  Federal  Reserve  Board  dealing  with 10 

Member   bank    32 

Negotiability   of    42 

Non-member  trust  company  acceptances — When  ineligible 36 

Opinions  of  Counsel  of  Federal  Reserve  Board  dealing  with 10 

Place  of  payment  of 33 

Purchase  of  its  own,  by  a  member  bank 11 

Qualified    32 

Renewing   of    10 

Secured  by  warehouse  receipts 7 

Statistics   on,  bought   in  open  market   and   held   by   Federal   Reserve 
Banks  as  per  schedule  on  file  with  the  Federal  Reserve  Board  on 

dates  specified,  distributed  by  classes  of  accepting  institutions 56 

Status  of  goods  forming  basis  of 10 

Trade     34 

Based  on  advertising  space 20,  44 

Definition   17,  34 

General   regulations   covering   rediscounts 17 

Use  bv  commercial  concerns 37 

ACTUALLY  EXISTING  VALUES— Defined  by  Federal  Reserve  Board.  13 

ADVANCES— On  cotton  for  export 37 

To  member  banks    44 

AGRICULTURAL  PAPER— Definition  17 

General  regulations  covering  rediscounts 17 

Informal  Rulings  of  Federal  Reserve  Board 46 

AGRICULTURAL   PRODUCTS   OR    IMPLEMENTS 43 

ASSIGNMENT  OF  OPEN  ACCOUNTS— Rediscount  of 43 

ASSURANCES— Banks  may  ask 35 

BANKERS'  ACCEPTANCES   7 

Definition   17 

General  regulations  covering  rediscounts 17 

Secured  by  bill  of  sale 33 

Special    regulations    covering    rediscounts 18 

BILL  OF  SALE — Bankers'  acceptance  secured  by 33 

BILLS  RECEIVABLE— Satisfactory  collateral 51 

BONDS  OR  NOTES  OF  U.  S.— Discount  of  paper  secured  by  or  issued 

for  purposes  of  trading  in 45 

62 


INDEX— Continued 

PAGE 

BUSINESS  PAPER  AND  SECTION  5200,  REVISED  STATUTES. . . .  38 

CATTLE — A  readily  marketable  commodity 47 

For  breeding,  grazing,  or  fattening,  as  security 48 

Mortgages  unnecessary  46 

Paper,  amounts  rediscounted 48 

COIN,  BILLS  DRAWN  AGAINST 55 

COLLATERAL   NOTES    52 

COMMODITY  PAPER 49 

Definition    17 

General   regulations   covering   rediscounts 17 

Includes  paper  of  merchants  and  others 49 

Ineligible  for  purchase  in  open  market  by  Federal  Reserve  Bank ....  23 

Purchases  from  member  banks 49 

Rulings  of  Federal  Reserve  Board 49 

CONDITION— Rediscount  of  drafts  payable  on 43 

CONTRACT— Not   fulfilled    35 

COTTON— Advances  on,  for  export 37 

Mill  paper,  conditions  as  to 50 

Mill  paper,  limit  on 53 

COUNTRIES   IN   WHICH   BANKS    AND   BANKERS   MAY   DRAW 

DRAFTS  TO  CREATE  DOLLAR  EXCHANGE 9 

CROSSTIES  AND  LUMBER— Good  security 52 

DAIRY  CATTLE— notes  for,  eligible 47 

DEALER'S    NOTE    INELIGIBLE 47 

DEFINITIONS— Agricultural  paper   (6  months) 17 

Bankers'   acceptance    17 

Commodity    paper    17 

Draft  or  bill  of  exchange 16 

Promissory  note    16 

Staples   55 

Trade  acceptance   17 

DEMAND,  WAIVER  OF 32 

DIFFERENTIAL  AS  TO  ACCEPTANCE 45 

DIGEST  OF  INFORMAL  RULINGS  AND  OPINIONS  OF  COUNSEL, 

FEDERAL  RESERVE  BOARD 31 

DISCOUNT— Mercantile    firms   can   not   discount   with   Federal    Reserve 

Banks 49 

Of   acceptances   indorsed   by   member   banks   located   in   another   dis- 
trict       31 

Of  drafts  and  bills  of  exchange 13 

Of  notes  renewed   50 

Of  paper  secured  by  or  issued  for  purposes  of  trading  in  bonds  or 

notes  of  United   States    45 

Of  renewals  of  acceptances 33 

Rebates  of   52 

DOMESTIC   ACCEPTANCES    7,  41 

DRAFTS— BILLS  OF  EXCHANGE 7,  9,  10 

Definition    16 

Discount    13 

Drawn  against  actually  existing  values 44 

Drawn    against    coin     55 

Drawn   by   drawee 40 

Drawn  in  foreign  countries 37 

Eligible  for  acceptance 7,  12 

General  rules  covering 11 

Growing  out  of  importation  or  exportation  of  goods 7 

Ineligible  for  acceptance   12 

Negotiability  of 43 

63 


INDEX— Continued 

PAGE 

Paid  on  or  before  certain  date 45 

Payable  on  condition,  rediscount  of 43 

Secured  by  warehouse  receipts "i 

Ten  per  cent,  limitation  does  not  apply  to 54 

DRAWEE— Draft  must  be  accepted  by 37 

ELIGIBILITY — Evidence  of,  in  open  market  transactions 23 

Of  acceptances    "i 

Of  notes    52 

•EVIDENCE— From  State  Member  Banks 35 

EXISTING  VALUES— As  defined  by  Federal  Reserve  Board 13 

FACE  VALUE— Rediscounts  are  for 54 

FARM  TOOLS— Notes  for,  eligible 47 

FEDERAL  RESERVE  ACT— Section  13,  as  amended   24 

Section    14,    as    amended     29 

FERTILIZER— Notes  for,  eligible   46 

FINANCE    COMPANIES— Paper   of,   ineligible 50 

FINANCIAL    STATEMENTS    51 

FOREWORD    5 

FORM  OF  STATEMENT 36 

GOOD    FAITH— A   test 35 

GOODS — Identification  of  specific   35 

Involved   35 

IDENTIFICATION   OF   SPECIFIC  GOODS 35 

INDORSEMENT  ON  WAIVER  OF  DEMAND,  NOTICE  AND  PRO- 
TEST     - 55 

INFORxMAL  RULINGS  OF  FEDERAL  RESERVE  BOARD,  Digest  of  31 

INTEREST  RATE— Of  member  bank,  government  does  not  fix 55 

IN  VESTMENT— Acceptances  for,  by  member  bank 13 

LIMITATIONS— Acceptance  of  drafts  and  bills  of  exchange 7 

Imposed   by  Section  5200  of  indebtedness   which   may   exist   between 

national  bank  and  individual 8,  13,  14 

No  limit  on  rediscounts  of  commercial  paper  for  any  one  bank 54 

On  amount  of  acceptances  as  imposed  by  Section  13,  Federal  Reserve 

Act    ." 38 

On    cotton-mill    paper    53 

On  rediscounts  of  commercial  or  business  paper 43 

Ten  per  cent,  limit  does  not  apply  to  bills  of  exchange 54 

LIMIT — Ten  per  cent,  to  one  maker  or  indorser 53 

LIVE  STOCK — Includes  beef  cattle,  horses  and  mules 46 

LOANS  NOT  MADE  DIRECTLY  TO  INDIVIDUALS 54 

LUMBER — Crossties  and,   good   security    53 

MANUFACTURED  PIG  IRON— Good  security  51 

MEMBER  BANKS— Acceptances   " 32 

Advances  to   44 

Interest  rate  of,  government  does  not  fix 55 

Profits   of 49 

Promissory  notes  of 44 

Purchases  of  commodity  paper  from 49 

MERCANTILE  FIRMS— Can  not  discount  with  Federal  Reserve  Banks.  49 

MORTGAGES— Cattle,  unnecessary   46 

NEGOTIABILITY  OF  BILLS  AND  NOTES  MADE  PAYABLE  "IN 

EXCHANGE"    40 

NEGOTIABILITY    OF    BILLS     OF    EXCHANGE     AND     ACCEPT- 
ANCES— Conditions  attached  to  and  affecting 42 

NON-MEMBER  BANKS— Direct  notes  of,  ineligible 50 

Rediscounts  of,  left  to  Federal  Reserve  Banks 52 

64 


INDEX— Continued 

PAGE 

NON-MEMBER    TRUST    COMPANY    ACCEPTANCES When    in- 
eligible       36 

NOTES— Collateral   3i.' 

Direct  notes  of  non-member  banks,  ineligible 50 

Eligibility  of   52 

For  dairy  cattle,  eligible   47 

For  farm  tools,  eligible 47 

For  fertilizer,  eligible   46 

Of  dealer,  ineligible   47 

Of  mule  and  cattle  dealers,  mercantile  paper 51 

"On  or  before,"  eligible 54 

Proceeds  of 54 

NOTICE— Waiver  of   32 

OPEN  ACCOUNTS— Rediscount  of  assignment  of 43 

OPEN  MARKET  TRANSACTIONS 22,  40 

Evidence  of  eligibility  of  paper  in 23 

General  regulations  covering 22 

Informal   Rulings   of   Federal   Reserve    Board 20,  40 

Opinions  of  Counsel  of  Federal  Reserve  Board 20,  40 

OPINIONS  OF  COUNSEL  OF  FEDERAL  RESERVE  BOARD— Digest  31 

PAPER  ELIGIBLE  FOR  REDISCOUNT— Informal  Rulings  of  Federal 

Reserve   Board 20 

Opinions  of  Counsel  of  Federal  Reserve  Board 20 

PAPER  OF  FINANCE  COMPANIES  INELIGIBLE 50 

PAPER   OTHER   THAN    AGRICULTURAL   OR   COMMODITY— In- 
formal Rulings  of  Federal  Reserve  Board 50 

PIG  IRON — Manufactured,  good  security   51 

PLACE  OF  PAYMENT  OF  ACCEPTANCES 33 

POTATOES    NOT    NON-PERISHABLE 49 

PRESENTMENT   OF   BILLS   FOR   ACCEPTANCE 32 

PROCEEDS  OF  A  NOTE  54 

PROMISSORY    NOTE— Definition     16 

General  regulations  covering  rediscounts 17 

Ineligible  for  purchase  in  open  market  by  Federal  Reserve  Bank....  23 

Of  member  banks   44 

Special    regulations    covering    rediscounts 18 

PROTEST— W^aiver  of    32 

QUALIFIED  ACCEPTANCES  32 

REBATES    OF    DISCOUNT 52 

REDISCOUNTS— Amounts  of  cattle  paper  rediscounted   48 

Of  assignment  of  open  accounts 43 

Eligible  paper — Informal  Rulings  of  Federal  Reserve  Board 45 

Eligible  paper — Opinions  of  Counsel  of  Federal  Reserve  Board 42 

For  face  value 54 

General  regulations  covering   17 

Informal  Rulings  of  Federal  Reserve  Board 20 

Kinds  of  paper  eligible 20 

Kinds  of  paper  ineligible 21 

Limit  on,  of  commercial  or  business  paper 43 

Xo  limit  on,  of  commercial  paper  for  any  one  bank 54 

Non-member  bank,  left  to  Federal  Reserve  Banks  52 

Opinions  of  Counsel  of  Federal  Reserve  Board 20,  42 

Special  regulations  covering  18 

To  reopened  insolvent  bank  53 

65 


INDEX— Continued 

PAGE 

RENEWALS  OF  ACCEPTANCES— Acceptance  of  10 

REOPENED  INSOLVENT  BANK— Rediscounts  to 53 

RESPONSIBILITY  WITH  FEDERAL  RESERVE  BANK 35 

SECTION   13  FEDERAL  RESERVE  ACT  AS  AMENDED 24 

SECTION  14  FEDERAL  RESERVE   ACT   AS   AMENDED 29 

SECTION  5200  U.  S.   REVISED  STATUTES 8,  13 

Application  of 36 

Business  paper  and   38 

Exceptions   to    47 

Limitations   imposed   under 8,  14 

SECTION  5202  U.  S.  REVISED  STATUTES 53 

SECURITY — Cattle  for  breeding,  grazing,  or  fattening  as 48 

Crossties  and  lumber,  good 52 

Undivided  interests  not  security 51 

SINGLE   NAME  PAPER 40 

STAMP — "Trade  Acceptances''  has  no  value 37 

STAPLES— Definition    55 

STATE  BANKS— Eligibility  of  purchase  of  acceptances 15 

STATE   MEMBER   BANKS— Evidence   from 35 

STATEMENT    FORM    36 

STATISTICS — Acceptances  bought  in  open  market  and  held  by  Federal 
Reserve  Banks  as  per  schedules  on  file  with  the  Federal  Reserve 
Board  on  dates  specified,  distributed  by  classes  of  accepting  insti- 
tutions      56 

Amounts  of  bills  discounted  and  acceptances  and  warrants  bought  by 
each  Federal  Reserve  Bank  during  May,  1917,  distributed  by  ma- 
turities     57 

Amounts  of  discounted  paper,  including  member  banks'  collateral  notes, 
held  by  each  Federal  Reserve  Bank  on  the  last  Friday  in  May,  1917, 

distributed  by  classes   61 

Bills   discounted   by  each   Federal   Reserve   Bank  during   May,   1917, 

distributed  by  sizes  59 

BiUs  discounted  during  the  month  of  May,  1917  and  1916,  and  the  five 

months  ending  May,  1917  and  1916,  distributed  by  classes 61 

Distribution,  by  sizes,  of  bills  bought  in  open  market  by  all  Federal 
Reserve  Banks  during  May,  1917,  and  the  five  months  ending  May, 

1917  and   1916   61 

Maturities  of  discounts,  acceptances,  and  municipal  warrants  held  by 

the  Federal  Reserve  Banks  on  Friday,  May  25,  1917 58 

Total  investment  operations,  exclusive  of  purchases  of  United  States 
certificates  of  indebtedness,  of  each  Federal  Reserve  Bank  during 
the  months  of  May,  1917  and  1916,  and  the  five  months  ending  May, 

1917  and   1916 .'.  60 

United  States  bonds,  notes,  and  certificates  of  indebtedness  held  by 
each  Federal  Reserve  Bank  on  May  31,  1917,  distributed  by  ma- 
turities     60 

TRADE  ACCEPTANCE   34 

Based  on  advertising  space  44 

Definition    17 

General   regulations   covering   rediscounts 17 

Stamp  "trade  acceptance"  has  no  value 37 

TRUST  COMPANIES— Eligibility  of  purchase  of  acceptances 15 

TRUST  RECEIPTS— Acceptances  ineligible  8 

UNDIVIDED  INTERESTS  NOT  SECURITY 51 

WAIVER  OF  DEMAND,  NOTICE,  AND  PROTEST 32 

Indorsement    on    55 

66 


National  Bank  of  Commerce 
in  Ne\^  York 

ORGANIZED  1839 

President 
James  S.  Alexander 

Vice-Presidents 
R.  G.  Hutchins,  Jr.  Stevenson  E.  Ward 

Herbert  P.  Howell  John  E.  Rovensky 

J.  Howard  Ardrey  Guy  Emerson 

Cashier 
Paris  R.  Russell 

Assistant  Cashiers 
A.  J.  Oxenham  A.  F.  Broderick 

William  M.  St.  John  Everett  E.  Risley 

Louis  A.  Keidel  H.  P.  Barrand 

A.  F.  Maxwell  R.  W.  Saunders 

John  J.  Keenan  H.  W.  Schrader 

Gaston  L.  Ghegan  R.  E.  Stack 

Auditor  Manager  Foreign  Department 

A.  F.  Johnson  Franz  Meyer 

Statement  of  Condition 

June  20,  1917 

RESOURCES 
Loans  and  Discounts         ....        $232,846,802.43 
U.  S.  Bonds  &  Certificates  of  Indebtedness  1  2,4  74.000.00 

Other  Bonds.  Securities,  etc.  -         -         -        31.358.416.46 

Banking  House 2.000,000.00 

Due  from  Banks  and  Bankers       -         -         -         12.405.873.20 
Cash,  Exchanges  and  due  from  Federal  Re- 
serve Bank 83.  n  5.296.5 1 

Customers*  Liability  under  Letters  of  Credit. 

Acceptances,  etc. 30.788,774.39 

Interest  Accrued -         788.988.94 

§405,778,151.93 

LIABILITIES 

Capital,  Surplus  and  Undivided  Profits       -       $45,236,043.11 

Deposils 311.988.288.47 

National  Bank  Notes  outstanding       -         -         -        155.000.00 
Letters  of  Credit         -----  15.150.740.14 

Acceptances  based  on  Imports  and  Exports         13.612.427.84 

Unearned  Discount 1,395,652.37 

Bills  Payable  with  Federal  Reserve  Bank      -       1 6,000.000.00 
Other  Liabilities -         2.240.000.00 

$405,778,151.93 


/? 


